The indoor unit/Air Handler
This unit removes undesirable indoor warmth and humidity. It includes the filter, the air handler and the evaporator coil. The air handler blows filtered air through the evaporator coil. The evaporator coil is kept cold by the circulation of a substance called a refrigerant. Air that travels across the evaporator coil gives up heat (the colder coil absorbs it) and humidity (moisture condenses upon contact with the cold surface of the coil). The cooler, drier air that continues through the air ducts is vented throughout your home to maintain your desired comfort level. Depending on the structure of your home, the ductwork may be above the ceiling or below the floor.
The condensing unit
Outdoors, at the condensing unit, an air conditioner releases the heat that was captured indoors. The same refrigerant that absorbed the heat indoors at low pressure is now pressurized by the compressor and is circulated through another coil, the condensing coil. In the condensing coil, under high pressure, the refrigerant releases its heat very quickly, making the coil itself hot. A fan blows across the coil, cooling its temperature down and transferring the heat to the outside air.