Modulation effects use one signal which is known as the modulator, which in turn modulates another signal which is called the carrier. Two common types of modulation are amplitude modulation (AM) and frequency modulation (FM).  Chorus, flangers, and phasers are all effects that are created using modulation.
If AM and FM sound like radio technologies to you, that's because they are. AM and FM are used to transmit signals by "storing" them in radio carrier waves of a certain frequency. This article will focus on modulation as it is applied to music production, not transmission.
Types of Modulation
Amplitude Modulation (AM)
Amplitude modulation, or AM, is a variation in the amplitude of a carrier signal, according to the value of a modulating signal.
When the modulation is of subsonic frequency (lower than the threshold of hearing), the result is referred to as tremolo, which has a recognizable 'fluttering' sound, often used by bowed string instrument player when they rapidly move the bow back and forth.
When the modulation is higher than around 30 hZ, the modulation will result in the introduction of new frequencies that are not present in either the carrier or modulator. This type of effect is commonly used on metallic sounds, such as bells and mallets, to generate interesting effects which retaining some of the original sound.
Frequency Modulation (FM)
See also: FM Synthesis
Frequency modulation, or FM, is a variation in the frequency of a carrier signal, according to the value of a modulating signal.
When the modulation is of subsonic frequency (lower than the threshold of hearing), the result is referred to as vibrato, which is characterized by a rapid, slight variation in pitch and is used by singers and some instrumentalists to provide a stronger or richer tone.
However, when the frequency of the modulating signal increases beyond a certain point, the vibrato effect disappears from the modulated tone, and a complex new tone replaces the original. 
The technique of FM synthesis was discovered accidentally by John Chowning at Stanford University in the 60's. He quickly discovered that FM is a very powerful method of synthesis and, in 1966, became the first person to compose and record a piece of music using FM as the exclusive means of sound generation. 
The technology was later licensed by Yamaha, and was the cornerstone for Yamaha's revolutionary DX7 synthesizer, which was the first commercially successful digital synthesizer and remains one of the bestselling synthesizers in history.