Codecs stands for Coder-Decoder. It is an audio signal converter that compresses your voice into digital form in order to transport it over data networks. Compression is needed to minimize the bandwidth that’s used to transport the voice. Large volumes of calls that connect fit into the largest bandwidth pipes will need to be compressed.
There are many vocoders, differing by the amount of bandwidth they consume, the voice quality they produce, their resiliency to network impairments and license model (free or royalties based) for using them. See a list of the most common VoIP Codecs.
An SBC may receive one vocoder on one side of the call and need to convert it to another vocoder on the other side of the call. This conversion is called transcoding. A common example would be an enterprise with an IP-PBX system supporting G.711 (a coder type), where the service provider SIP trunk supports G.729.