When you get into a
cab, the driver will normally start the
meter running. This will determine what you owe whenever you get
where you're going. The meter runs on
time, not
distance. Thus, if you get caught in a
traffic jam or some other interruption, you'll have to pay extra.
If the cab is owned by someone who is not the driver, the meter is also a great way for him to keep track of how many fares the driver has had on any given day. He can, if he feels he's being screwed, check the meter in relation to the log books kept by the dispatcher. So, when the meter is on, there's really no way for the driver to screw the owner.
However, there are times when the meter is of no use. An example of this would be when the driver picks up more than one fare. Let's say that the driver is the only cab at the airport, and three fares need to go to three different hotels. The driver can then declare what is called a flat rate. That is, he can give a price to each of the three fares for what it usually costs to take any one fare to those hotels.
The trick here is this: Since the meter is off, the dispatcher and the owner really have no way to track the extra fares. So, the driver can put that money from the additional two passengers in his pocket as a sort of self-actualized tip.
Just another way to stick it to the man, man.