Telnet is a client-server protocol for making terminal connections over the network. A terminal connection is like using an ANSI serial ("dumb") terminal or a PC with a communication package like Procomm. The client plays the role of the terminal; the user of the client types characters at his keyboard and the remote system -- the server -- sends characters which are displayed on the client's screen. These sessions are normally oriented toward straight ASCII text with limited use of control characters or ANSI control sequence, and are usually not graphical like Windows is.
The Telnet protocol does make the distinction between binary mode and non-binary, or ASCII mode. In binary mode control characters are not assumed to be intended to control the appearance of the screen and must flow through without any modification by the system. In ascii mode certain control functions, like rubout, are represented by special hidden sequences and the operating system is free to generate appropriate codes for its environment.
TSX supports both Telnet client and telnet server. The client (actually there are two of them) allows interactive character based users of the TSX system to Telnet out to remote computers. The server is used when remote systems want to access the TSX system. If you want to read more about TSX and Telnet, you need to decide whether your interrest lies in telnet server for incoming connections or telnet client for outgoing connections.