This circuit uses a single transistor and LM386 amplifier IC to produce an intercom that allows hands-free operation. As both microphones and loudspeakers are always connected, the circuit is designed to avoid feedback - known as the "Larsen effect".
The microphone amplifier transistor is 180° phase-shifted and one of the audio outputs is taken at the collector and its in-phase output taken at the emitter. These are mixed by the 10u, 22u, 20k pot and 2k7 so that the two signals almost cancel out. In this way, the loudspeaker will reproduce a very faint copy of the signals picked-up by the microphone.
At the same time, as both collectors of the two intercom units are tied together, the 180° phase-shifted signal will pass to the audio amplifier of the second unit without attenuation, so it will be loudly reproduced by its loudspeaker.
The same operation will occur when speaking into the microphone of the second unit. When the 20k pot is set correctly, almost no output will be heard from the loudspeaker but a loud and clear reproduction will be heard at the output of the other unit. The second 20k pot adjusts the volume.