Generally, there are three types of central air conditioning — Air Cooled, Water Chilled, and Gas Chilled. These systems typically work with forced air furnaces. They work on the principle of absorbing heat from the air within the house and transferring it outside.
Independent systems, where forced air furnaces are not present, work the same idea as the others however they have their evaporator coil contained within their own ductwork. Consequently these stand-alone systems can be a costly endeavour.
Air Cooled — These are the most common of central air conditioning systems. Two basic components are used. An evaporator coil located within the furnace (above the heat exchanger) and a condenser coil located outside. Cold liquid refrigerant entering the evaporator removes heat from the warm house air passing over it. It then exits the house to the condenser (the heart of the system) where it is now a gas. The fan in the outdoor unit cools this gas where it then turns back to a liquid before re-entering the home to repeat the process. The action of cooling warm moist air causes condensation to form at the evaporator thereby acting as a dehumidifier as well. The overall result is a much cooler and dryer air.
Water Chilled — This system operates essentially the same as an air-cooled unit in that there is still an evaporator in the furnace and a condenser. The condenser, however, is usually located by the furnace inside the house. Here the gas formed by the evaporator is cooled back to a liquid by water from the plumbing system. As water from the house (typically) is used to cool it this warmed up water must also be able to exit the system. Often it goes down the drain. Although it is not potable it can be used for gardening, watering lawns, or, filling pools in certain circumstances.
Gas Chilled — This system is not very common anymore. Often when these units fail they are replaced with a more traditional unit. Although this system operates as the others mentioned above they are more complicated. It involves heating a liquid solution to form a gas. The gas then cools water, warmed by the house air.
Other Systems — Evaporative coolers (sometimes called swamp coolers) blow dry warm air through a water soaked pad. The result is humid, much cooler, air. This type of system only works in dryer climates such as the American Southwest.