The SIM (Subscriber Identity Module) card holds a microchip and slips into the handset allowing you access to a mobile phone network. This network is made up of a series of base stations that send signals used by mobile phones. The area covered by each of these base stations is called a cell and cells overlap to make up a coverage area.

Whenever you switch a mobile phone on it will connect to the nearest base station. As you move around you may get closer to another base station in another cell. When this happens, the network will automatically switch your phone to the other base station.
If the base station that your phone is switched to is already working to its full capacity it cannot take in your signal. If this happens you may get a drop out and your phone will not work in that area. Dropped calls can also happen when you are in an area where cells do not overlap.