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Within the multi-national calling area administered by NANPA, telephone numbers are segmented into fixed-length fields:
- a 3-digit area code, indicating a large geographical (or heavily populated) area, such as a metropolitan area or a whole state (or special service, such as toll free numbers)
- a 3-digit exchange, indicating (amongst others) a city or other municipal area
- a 4-digit station number
Traditionally, calling from one area code to another, specifically for long distance calls, requires the caller to dial the trunk digit "1" before the code and number. More recently, with the increasing number and decreasing geographic size of area codes, it is possible to call a number in another area code that is not long distance, and such a call does require the area code, but not the trunk digit (initial "1").
Traditionally to avoid number confusion, identical exchange numbers in different area codes would be assigned as far apart from each other as possible, so that callers living near a state or NPA boundary would not get two areas in different NPAs confused. This made it possible in some low-density areas to use 7-digit dialing even to reach areas in another area code.
Before the advent of overlay plans, it was universally accepted (and in some cases, required) that a call to a number in the same area code as the calling station be dialed without including the area code. As a result, the caller has to dial only the 7 digits of the exchange plus the station number.
It is possible to make a long distance call within the same area code; in this case the caller has to dial a "1" before the local 7-digit number. Until recently, in some cases, including the area code when dialing such a number would confuse the telephone system, and prevent the call from being connected.
This convention did not have a name until overlay plans introduced a requirement in some areas that all calls, even local, must be dialed by including the area code, i.e. 10-digit dialing. Traditional 7-digit dialing is still valid in those portions of the country not subject to an overlay plan.
Many modern cellular phones will automatically include the area code of the phone in the dialed number if the user enters only 7 digits. Although the caller dials only 7 digits, in this case, the number dialed out to the phone network is actually 10 digits.
See also 
- http://646fpne.fairpoint.com/customer_service/faqs.php#instatecall (areas of New Hampshire and Maine prior to 2002)