It seems to me that wire transfers were one of the original forms of e-commerce. I know that Western Union and banks have been doing for well over one hundred years. However, I have know idea wire transfers work or at least how they worked back in the old days. My questions are:
Charity bump on my own behalf. I have never not received an answer on this board before and I would really like to understand this.
Someone must know or should I send this one Uncle Cecil himself?
1 & 2: by telegraph
3 NO.
No physical movement of money occures, wether it’s wire (telegraph), electronic or telephone. Only armored trucks move money. It’s the way prefered by robbers.
Here’s a few links to answer you. All you have to do is use a search engine 
http://members.tripod.com/morse_telegraph_club/comphis.htm
Let’s say Joe has an account at Bank of America (BOA) and wants to transfer a million bucks to Sam at Citibank. BOA and Citibank already has several million bucks on deposit with the Federal Reserve (FED).
Joe gives BOA the instructions where the money is supposed to go. BOA takes one million dollars out of Joe’s account. BOA wires FED and Citibank the instructions. BOA instructs FED to move one million bucks from the BOA account (at FED) to the Citibank account (at FED). BOA tells Citibank (in effect), "Hey, you know that million bucks that just showed up in your FED account? Well put it in Sam’s account.
Not answering the OP directly, but as I understand it, most “money” only exists as numbers and data in computers. In the US alone, the government never prints up enough money to cover how much people actually have. They print up enough for people to use at one time for transactions out of their wallets, and whatnot. Most large transactions involving large amount of cash, like for a purchase of a car or a home, never exist on the paper money level.
So when people transfer money over wire, it seems to me that they just do a basic subtract x amount from person A to add x amount to the account of person B. All numbers, no actual hard cash changing hands.
I’ll wait for someone with actual numbers and info to back me up or to refute me.
More or less right Squeeand bizerta, but 100 years out of date. In the olden days, you would walk up to the Western Union office in Arpmit, Missouri and give them a sack of gold. They would then telegrapgh the office in Times Square and tell the guy there to give two thousand dollars or whatever to the gentleman in the big hat called Joe.
These days, all interbank transfers are done with SWIFT (see the previous link I posted). There is an awful lot of encryption involved. SSL secure servers used for normal e-business uses 128 bit encryption, but IIRC, SWIFT uses 338 bit encryption.
I am guessing, but modern day Western Union uses a combination of both the above two messages.