Chomsky and Halle present a view of phonology that, not surprisingly, fits in with the rest of Chomsky's early theories of language. Phonology is seen as a linguistic subsystem that takes the "surface structure" generated by the syntax, combined with phonological information stored in the lexicon, and yields the corresponding phonemic output.
As is often done in phonology, Chomsky and Halle represent speech sounds as bundles of yes-or-no valued features (e.g. vocalic, high, back, anterior, nasal, etc..) The phonological component of each lexical entry is thought to consist of a linear sequence of these feature bundles. A number of context-sensitive rules coordinate the phonologies of successive words and phrases into the phonology of the entire sentence. These rules are allowed access to the tree structure that the syntax is said to output, which allows for rules that apply, for example, only at the end of a word, or only at the end of a noun phrase.
...the transformational cycle
...what kind of phonomena get explained: where stresses fall in an utterance, vocalic shift
...influence on modern phonology