Most people think that a microphone is a device that makes the sound louder. That is incorrect technically speaking. A microphone does not make the sound louder. It is the other things in the assembly, of which a microphone is a part, that makes the sound louder or softer. One evidence of the fact that microphone does not make sound louder or softer is that a micrphone does not have volume control. It is the amplifier, to which the microphone is attached, which changes the volume. A microphone is not an amplifier. A microphone is only a transducer that converts audio signal into electrical current.
Microphone -> amplifier -> loudspeaker
A microphone is a device that converts an audio signal into electric signal. This process is called transduction, in which the mode of the signal has gone from analogue audio to electrical. This is why a microphone is also called a transducer. How does this happen? In its core, a microphone is merely two small metallic plates that are separated by a thin layer of carbon particles. The sandwiched carbon layer gently keep the the two metallic plates separated. There is a current supplied to the two plates and the intervening carbon layer. If there is silence, the current that passses through the plates-carbon assembly remains constant. However, when there is soun signal, the plates vibrate like a diaphragm. The vibrating plates correspondingly squeeze and relax the carbon layer because of the pressure from the vibration. The squeezing of the carbon layer decreases the resistance, and increases the current flow. The relaxing reinstates the resistance and decreases the current flow. This increase-decrease, or modulation, of current signal is the representation of the speech signal. So, the microphone has taken an audio signal and converted it into a modulations of current signal. That's it. That's the job of the micrphone. That's all what a micrphone does. Take the audio signal as the input and convert it into (modulated) current signal. The thing you hold in your hand, or place on a stand, which you call a microphone... that's what it does.
It is important to note that carbon layer technology is very old now, and is hardly used anymore. Early telephones were based on that technology. Nowadays, instead of using the varying resistance from carbon layer, other technologies are used, e.g. electromagnetism. In modern microphones, there is plate (or diaphragm) that sits atop a standing coil. The coil is housed inside a magnetic casing. When the diaphragm vibrates, it pushes down on the coil. This coil then moves up and down like a spring inside the magnet. We know that whenever a metallic coil moves inside magnet, or a magnet moves inside a coil, current is generated. This current is the output of the microphone. So, the modern microphones are similar to the early microphones, i.e. they take the audio signal, and convert it, or more correctly transdue it, into electrincal signal. The modern microphones are different from the early microphones in the way they transduce the signal. Thus, a microphone is really just a transducer, whose input is audio signal, and the output is an electrical signal. What you do with the modulated current signal is the next part of the story.
You can convert the modulations of the current signal into bits-and-bytes, and store it in a device. This is called audio recording. An audio recording is essentially a 'record', i.e. a note, of how strong the current signal was at what time. The sound signal is analogous, i.e. it does not occur in bits and pieces. When a person sings a note, it is a continuous signal, like a long ribbon. So, the vibration of the micrphone diaphragm is also continuous. So, the modulation in the current, which is the output of the microphone, is also continuous and analog. When you make the digital recordings, the recorder needs to "look" at the value of current, and make a note of it. It cannot wait for the audio signal to stop for taking down the notes of the values. The notes have to be made continuosly as well. So the recorder looks at the current value, then makes a note of this value, then looks again, and then makes a note of that value, and continues to do that. Thus, the recorder needs to look at a number of times at the current value, instead of one continuous glance. This is what gives rise to digital encoding of the current values. So, the sound signal was smooth and continuous like a long ribbon, the recorded signal is like a chain made up of many different measured and noted values, like how a chain is made up of individual metal rings. Thus, an audio recorder take the current signal from a microphone, and converts it into a series of bits-and-bytes and saves it as a recording ,e.g. mp3. An audio recorder can thus be considered to be a translator, which translates the analogous current signal coming from a micrphone, and translates it into bits-and-bytes and saves this bits-and-bytes information as a file, e.g. mp3.
An audio player is really just reverse translation. It can translate bits-and-bytes into corresponding current values. An audio player reads the mp3 file, and converts the bits-and-bytes into current values. This current value information is handed over to the loudspeaker.
The word 'loudspeaker' is a misnomer. 'Loudspeaker' make it sound like a loudspeaker makes the sounds louder. That's not necessarily true. Loudspeaker converts the electrical signal into sound signal. It reverses the process of microphone. The microphone had provided the current signals. These signals are provided as the input to a loudspeaker. A loudspeaker has a coil, like micrphones. As the varying degree of current is applied to the coil, it turns magnetic to a varying degree and to different polarities. There is a permanent magnet at a short distance from the coil. As the coil turns magnetic, it gets attracted to the permanent magnet, and then either gets repelled when the polarity changes, or goes back to the original position when the electric stops flowing through it. The coil is attached to a diaphragm, just like in a microphone. As the coil moves back and forth, the diaphragm also gets stretched and relaxed, inducing vibrations in it. This happens very rapidly and several hundreds of times per second. It is these vibrations that get transferred to the air molecules close to the diaphragm, which then becomes audible sound to humans. The amount of movement of the diaphragm decides how loud the sound will be. A loudspeaker does not automatically make the decision of how loud the sound would be. It only takes the current signal provided to it, and converts it into mechanical vibrations. If the current signals sent to the loudspeaker were large, then the vibrations shall also be large, leading to loud sound. If the current signals sent to the loudspeaker were small, the sound shall be soft. Thus, the loudspeaker does not on its own make the sound louder. It needs to be provided with larger signals to do so, which is the job of an amplifier.
A microphone's primary concern is to encode the modulation in current signal, i.e. how the current changes with respect to time. The problem is that microphone does it at a very small scale. The current signal coming from a microphone is very feeble. If that feeble current was fed into the loudpseaker, it won't be enough to drive the diaphragm of the loudpseaker, and no sound will come out of it. So, the current signal is enlarged or amplified before it is sent to the loudpseaker. This is done by an amplifier.