T38 is a protocol that describes how to send a fax over a computer data network. T38 is needed because fax data can not be sent over a computer data network in the same way as voice communication. See How does FAX work in VoIP environments? for more information about this. In essence, with T38 a fax is converted to an image, sent to the other T38 fax device and then converted back to an analog fax signal. Most VoIP Gateways and ATA’s now support T38 reliably. An example fax setup using a Linksys 3102 can be found here
T38 is described in RFC 3362, and defines how a device should communicate the fax data. In the picture above both the gateway and the fax machine behind the gateway would have to be capable of T38. For the G3 fax machine on an analog line, this process will be transparent. The analog fax machine does not need to know T38.
3CX Phone System for Windows includes a full featured T38 fax server that allows faxes to be sent and received from anywhere in the network. Faxes can be received as PDF and forwarded via email. Faxes can be sent from anywhere in the network via Microsoft Fax Services (which is included with Windows 2003 and 2008)