Props to RM-MN of homebrewtalk.com
During the first phase, the yeast are using up the oxygen to reproduce. This is usually called the lag phase because it appears that nothing is happening.
Phase 2 is where the yeast go crazy, eating the malt sugars and excreting alcohol and CO2. This is often called the active phase. While the yeast are primarily making the alcohol and CO2, there are a number of other compounds produced then too, on of which is acetaldehyde.
During the third phase, this acetaldehyde is reduced to alcohol by the yeast but there is no CO2 being produced so many brewers assume that the ferment is over. This acetaldehyde is what gives beer the “green apple” or “cider” aroma. This process takes some time so we tell people not to rush to bottle.
The yeast also break down or absorb other compounds that give “off flavors” so it is sometimes called the cleanup phase.