Define: Headphones are a pair of small speakers that have been designed to be held in place close to the wearer’s ears. Headphones either come wired for a connection to a source such as a portable media player or mobile phone, or have a wireless receiver, which is used to pick up the signal without using a cable using technologies such as bluetooth, Kleer or even WiFi. They are sometimes known as earspeakers or, colloquially, cans. The in-ear styles are also known as earphones, earbuds or IEMs (In Ear Monitors).
Different Driver Technologies.
Dynamic or Moving Coil: Most headphones or earphones that you will come across use dynamic drivers. Dynamic drivers use alternating magnet fields in order to create the sound by moving air. Normally fixed to the internals of a dynamic driver will be a magnetic element made of either ferrite or neodymium. The light weight diaphragm that has to rapidly move in order to create the sound by moving the air is attached to a coil of wire or a “voice coil” which is immersed inside the static magnetic field. The diaphragm which is sometimes made of cellulose, polymer, carbon material or similar is rigid and is able to move when current passes through the attached “voice coil”. As the current changes when playing back your music, the “voice coil” reacts with the static magnetic field and in turn causes the diaphragm to move.
Balanced Armature: 
A balanced armature design such as that seen in the Musical Fidelity EB50 or the Ortofon EQ5 offer a slightly different design to a dynamic design but still use magnets in order to achieve the final result. Balanced armature design were incorporated to try and eliminate the stress that magnetic transducers put on the diaphragm. By doing this it increases the efficiency of the driver and requires less current to work. As can be seen in the diagram opposite, a balanced armature consists of a moving magnetic armature that is effectively floating and “balancing” so it can move in the field of the permanent magnet. When playing music the electric current passes through the coil and magnetizes the armature one way or the other, this causes it to rotate slightly thus moving the diaphragm to make sound.
There are a few pro’s to using balanced armature drivers, such as higher efficiency and in my mind they can offer slightly more detail than dynamic drivers. However they are limited at the extremes of the hearing spectrum and require a much better fit within the ear. The seal is more important than other types of drivers to deliver their full potential which is why balanced armature drivers are usually only found in in ear canal earphones. The higher end designs can employ multiple armature drivers, dividing the frequency ranges between them using a passive crossover network. A few brands use hybrid technology and use an armature driver with a small moving-coil driver for increased bass output.
Electrostatic: The third type of design can be seen in 
Electrostatic drivers. These have been designed again with magnets in mind and consist of a thin, electrically charged diaphragm. Often these charged diaphragms are coated in a polyester resin (PET) film membrane, suspended between two perforated metal plates (electrodes). When listening to your music the electrical sound signal is applied to the electrodes either side of the diaphragm to create an electrical field; depending on the polarity of this field, the diaphragm is drawn towards one of the plates. As this occurs air is forced through the perforations in the charged metal plates and combined with a continuously changing electrical signal driving the membrane, a sound wave is generated. Electrostatic headphones can be more expensive than moving-coil or balanced armature ones, and are comparatively uncommon. STAX of Japan create an entire range of electrostatic headphones and are quite possibly the most famous.
Often due to Electrostatic designs having no moving metalwork they can often outperform other types of drivers in regards to distortion and can extend to frequency ranges far higher than a humans audible limit of roughly 20kHz. This high frequency response means that midband distortion is very low and extends to the top of our audible frequency band. The result is significantly better sound quality if the speaker has been designed properly.
Orthodynamic (Isodynamic) or Planar-Magnetic:
Orthodynamic headphones are a hybrid of the round or oval shaped drivers found in dynamic headphones and electrostatic headphones. The lightweight orthodynamic diaphragms are generally made of a flexible plastic film that is impregnated with a voice coil in a spiral shape enabling the entire diaphragm to be driven more equally over its entire surface negating the need to make it rigid.
Either side of the diaphragm is a perforated disc magnet that the voice coil reacts against when current is passed through it. This in turn then causes the diaphragm to move towards one magnet or the other and moves the air. Due to the orthodynamic diaphragms being more substantial than electrostatic diaphragms the equal force drive principle offers an amazing dynamic response, and excellent transients similar to an electrostatic headphones, so long as there is sufficient mechanical damping.