A Digital Subscriber Line Access Multiplexer (DSLAM), often pronounced dee-slam allows telephone lines to make faster connections to the Internet. It is a network device, located in the telephony exchanges of the service providers, that connects multiple customer Digital Subscriber Lines (DSLs) to a high-speed Internet backbone line using multiplexing techniques.By placing remote DSLAMs at locations remote to the telephone company central office (CO), telephone companies provide DSL service to locations previously beyond effective range.
Path taken by data to DSLAM
Residential/commercial source: DSL modem plugged into the customer's computer.
Local loop: the telephone company wires from a customer to the telephone company's central office, often called the "last mile".
DSLAM: a device for DSL service. Sending on the customer or downstream side, it intermixes voice traffic and VDSL traffic onto the customer's DSL line. Receiving on that side, it accepts and separates outgoing phone and data signals from the customer. It directs the data signals upstream towards the appropriate carrier's network, and the phone signals towards the voice switch.
Main Distribution Frame (MDF): a wiring rack that connects outside subscriber lines with internal lines. It is used to connect public or private lines coming into the building to internal networks. At the telco, the MDF is generally in proximity to the cable vault and not far from the telephone switch.

Role of the DSLAM
The DSLAM equipment at the telephone company (telco) collects the digital signals from its many modem ports and combines them into one signal via multiplexing. Depending on the product being used, a DSLAM would aggregate the DSL lines with some combination of Asynchronous Transfer Mode (ATM), frame relay, or Internet Protocol networks (i.e., IP-DSLAM that uses the PTM-TC stack)(Packet Transfer Mode - Transmission Convergence).
The aggregated signal is then loaded onto the telco's backbone switching equipment, traveling through an access network (AN)—also known as a Network Service Provider (NSP)—at speeds of up to 10 Gbit/s and connecting to the Internet-backbone.
In terms of the OSI 7 Layer Model, the DSLAM acts like a massive network switch since its functionality is purely Layer 2.
A DSLAM is not always located in the telephone company's central office, but may also serve customers within a neighborhood Serving Area Interface (SAI), sometimes in association with a digital loop carrier. DSLAMs are also used by hotels, lodges, residential neighbourhoods, and other corporations setting up their own private telephone exchange.
Besides being a data switch and multiplexer, a DSLAM is also a collection of modems. Each modem on the aggregation card communicates with a subscriber's DSL modem. The modem function is integrated into the DSLAM itself, rather than being separate hardware like a traditional computer modem. Like traditional, voice-band modems, the integrated DSL modem has the ability to probe the line and train itself to compensate for forward echoes and other impairments in order to move data at the maximum rate the telephone line allows. This is also why twisted pair DSL services have a longer range than physically similar unshielded twisted pair (UTP) Ethernet.

Speed versus distance
Balanced pair cable has higher attenuation at higher frequencies, hence the longer the wire between DSLAM and subscriber, the slower the maximum possible data rate. The following is a rough guide to the relation between wire distance (based on 0.40 mm copper) and maximum data rate. Local conditions may vary, especially beyond 2 km, often necessitating a closer DSLAM to bring acceptable speeds:
25 Mbit/s at 1,000 feet (~300 m)
24 Mbit/s at 2,000 feet (~600 m)
23 Mbit/s at 3,000 feet (~900 m)
22 Mbit/s at 4,000 feet (~1.2 km)
21 Mbit/s at 5,000 feet (~1.5 km or ~.95 miles)
19 Mbit/s at 6,000 feet (~1.8 km or ~1.14 miles)
16 Mbit/s at 7,000 feet (~2.1 km or ~1.33 miles)
1.5 Mbit/s at 15,000 feet (4.5 km or ~2.8 miles)
800 kbit/s at 17,000 feet (~5.2 km or ~3.2 miles)

Additional features
A DSLAM may offer the ability to tag VLAN traffic as it passes from the subscribers to upstream routers. Though not a full stateful firewall, some DSLAMs also offer packet filtering facilities like dropping inter-port traffic and dropping certain protocols.
The DSLAM also supports quality of service (QoS) features like contention, differentiated services ("DiffServ") and priority queues.

Hardware details
Customers connect to the DSLAM through ADSL modems or DSL routers, which are connected to the PSTN network via typical unshielded twisted pair telephone lines. Each DSLAM has multiple aggregation cards, and each such card can have multiple ports to which the customers lines are connected. Typically a single DSLAM aggregation card has 24 ports, but this number can vary with each manufacturer. The most common DSLAMs are housed in a telco-grade chassis, which are supplied with (nominal) 48 volts DC. Hence a typical DSLAM setup may contain power converters, DSLAM chassis, aggregation cards, cabling, and upstream links. The most common upstream links in these DSLAMs use gigabit ethernet or multi-gigabit fiber optic links.

IP-DSLAM
IP-DSLAM stands for Internet Protocol Digital Subscriber Line Access Multiplexer. User traffic is mostly IP based.
Traditional 20th century DSLAM used Asynchronous Transfer Mode (ATM) technology to connect to upstream ATM routers/switches. These devices then extract the IP traffic and pass it on to an IP network. IP-DSLAMs extract the IP traffic at the DSLAM itself. Thus it is all IP from there. Advantage of IP-DSLAM over a traditional ATM DSLAM is in terms of lower capital expenditure and operational expenditure and a richer set of features and functionality.
References
http://en.wikipedia.org/wiki/DSLAM