An air conditioner is basically a refrigerator without the insulated box.  An air conditioner is doing exactly the same thing as your fridge, except it dumps the heat it takes out of the controlled area and dumps it outdoors instead of in your kitchen. To understand what goes on in the system, let's start where the "freon" gas enters the compressor located typically in the outside part of the unit. 

As the Refrigerant gas enters the compressor, it squeezes this  freon gas that has just absorbed heat from the indoor air, causing it to become extremely hot. This is just like what happens near the end of a bicycle pump when you push the handle down. The air being compressed into the end of the pump will get hot, because all the heat that the air inside it contained, is squeezed into an area that is many times smaller than where it just was. This now high-pressure freon gas, that is now many times hotter than it was before it got squeezed, runs through a set of coils outside where a fan blows on it to cool the high temperature gas, so that a large portion of this concentrated heat is removed from it. The fan and coil arrangement outside are very similar to a radiator on a car. 

As the Outside unit (or radiator) cools this hot vapor, it condenses into a liquid just like steam condenses into water when it loses its heat. This high pressure freon liquid which has now had a lot of its original heat forced out of it, is then pulled back into the house where it waits its turn to pass through a tiny opening that is the entrance to the indoor coil that sits within your home's air stream. 

By using this tiny opening to "back-up" the pressure on the outdoor part of the system, it allows the compressor to maintain a low pressure side within the indoor coil that is in your home's air stream.  When the cooled High pressure gas finally passes into this low pressure area, the difference in pressure causes part of it to immediately expand into a gas. In a sense, this is like the compressor working in reverse, because now the cool freon is occupying a bigger area, so the heat that was left in it now has to spread itself out over its bigger size. 

This need to use its limited heat over a now bigger gas molecule, causes it to rapidly become quite cold, so that as it passes through the indoor coil, the air passing over this coil (the radiator effect again) is cooled and then spread through your home by your home's duct work. Meanwhile the heat that was taken out of your home's air, has entered the warming freon gas so that when it gets back to the compressor the whole process is repeated.

In cooling mode, a fan draws warm air from inside through a filtration system and over the evaporator coil. As the air passes over the coil, any moisture in the air condenses on the evaporator coil and then runs off into a drip tray where it is drained away. The refrigerant in the evaporator coil enters as a liquid and as the filtered air passes over the cold coil, it reduces the air temperature. The refrigerant then carries the warm air in a gaseous state to a compressor where the vapour is compressed and passed through to the condenser coil. A fan then moves air across the warm refrigerant and expels the warm air outside while reducing the temperature of the refrigerant. As the refrigerant cools down, it changes back to its liquid state and is pushed back to the evaporator coil to repeat the process.

Glossary :

Air Handler The air handler functions as the evaporator section of the air conditioning system. The air handler is typically located indoors and its primary purpose is to circulate the conditioned air.

BTU - British Thermal Units 1 BTU = amount of heat required to increase the temperature of 1 pound (0.45kg) of water by 1 degree Fahrenheit (0.56 degrees Celsius).

Compressor The compressor is the motor which drives the condensing unit.

Condensing Unit The condensing unit acts as a pump which compresses the vaporised refrigerant from the air handling unit, liquifies the gas and returns it to the air handler.

Evaporator Coil The evaporator is located inside the air handler unit and is where the refrigerant vaporises and absorbs heat.

Refrigerant
The refrigerant is a substance which absorbs heat by changing states from liquid to gas (evaporating). It then releases the heat by changing back to its liquid state (condensing).

SEER - Seasonal Energy Efficiency Rating The SEER of an air conditioning unit tells you how efficiently the unit uses electricity. The higher the SEER rating, the greater the efficiency. This can be calculated by dividing its BTU rating by the unit's wattage. For example, an 11,500 BTU air conditioner that consumes 1,200 watts will have a SEER of approximately 9.5 (11,500 BTU / 1,200 watts).

Split System. A split system air conditioner allows the air handler to be installed away from the condenser. This allows more flexibility in confined spaces and also helps reduce indoor noise by having the condenser located outside.

Thermostat The thermostat is a temperature-sensitive switch that controls the heating and cooling system. If the temperature varies from a predefined setting, the thermostat turns the air conditioner on to restore the temperature to the desired level.

Air conditioning includes the cooling and heating of air. It also cleans the air and controls the moisture level. An air conditioner is able to cool a building because it removes heat from the indoor air and transfers it outdoors. A chemical refrigerant in the system absorbs the unwanted heat and pumps it through a system of piping to the outside coil. The fan, located in the outside unit, blows outside air over the hot coil, transferring heat from the refrigerant to the outdoor air.  Most air conditioning systems have five mechanical components: A compressor, A condenser coil and fan A metering device or an expansion valve, An evaporator coil and blower. A chemical refrigerant

Most central air conditioning units operate by means of a split system. That is, they consist of a "hot" side, or the condensing unit—including the condensing coil, the compressor and the fan—which is situated outside your home, and a "cold" side that is located inside your home. The cold side consists of an expansion valve and a cold coil, and it is usually part of your furnace or some type of air handler. The furnace blows air through an evaporator coil, which cools the air. Then this cool air is routed throughout your home by means of a series of air ducts. A window unit operates on the same principal, the only difference being that both the hot side and the cold side are located within the same housing unit.

The compressor (which is controlled by the thermostat) is the "heart" of the system. The compressor acts as the pump, causing the refrigerant to flow through the system. Its job is to draw in a low-pressure, low-temperature, refrigerant in a gaseous state and by compressing this gas, raise the pressure and temperature of the refrigerant. This high-pressure, high-temperature gas then flows to the condenser coil.

The condenser coil is a series of piping with a fan that draws outside air across the coil. As the refrigerant passes through the condenser coil and the cooler outside air passes across the coil, the air absorbs heat from the refrigerant which causes the refrigerant to condense from a gas to a liquid state. The high-pressure, high-temperature liquid then reaches the expansion valve.

The expansion valve is the "brain" of the system. By sensing the temperature of the evaporator, or cooling coil, it allows liquid to pass through a very small orifice, which causes the refrigerant to expand to a low-pressure, low-temperature gas. This "cold" refrigerant flows to the evaporator.

The evaporator coil is a series of piping connected to a furnace or air handler that blows indoor air across it, causing the coil to absorb heat from the air. The cooled air is then delivered to the house through ducting. The refrigerant then flows back to the compressor where the cycle starts over again.

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