It's before my time but I think cranking the handle generated electricity to signify to the operator on the switchboard you wanted a line to call somebody, when the operator answered you asked them to connect you with the required number.
Correct. The handle turned a generator which rang a bell at the exchange. This system was still in use until relatively recently in some railway signal boxes where the phone just connected to the one at the next station rather than through an exchange.
"People who say things won't work are a dime a dozen. People who figure out how to make things work are worth a fortune" - Dave Rat.