Built in effects provide on-board sound processing normally only found in effects pedals. Generally they replace one of the potentiometers with a rotary switch that selects the different options provided. These can range from clean volume boost to heavy distortion and may also be used to control EQ and filtering.
Why would you want it?
Gives easy to access effects without the use of pedal boards and complex rigs, they can be ideal for practice guitars and will give a range of effects on a small budget.
This is not going to be equivalent to a quality effects pedal, these are definitely at the budget end of the scale and the limitations of the package size means the circuits and components used will also be lower quality.
These circuits are active and will require a battery this will need to be housed within the guitar. You will also need to replace one of your pots (tone usually) with the rotary switch. Depending on the guitar this might mean extensive re-wiring. These units are quite bulky and you may need to rout some extra space if the control cavity is quite shallow.
A stereo jack socket to turn the power on and off for the circuit will normally be included, this will replace the standard mono socket so that your battery will not run down when the guitar is not in use (provided you remember to unplug the guitar).
What do I need to do it?
A built in effects unit
Wire and soldering gear
A battery normally 9V
How does it work?
The effect will normally be connected between the pickup selector switch and volume/tone controls that then go to the output.
The picture below shows the QDD installation, bear in mind there is a lot of additional wiring in view from the other mods to the guitar (phase switch, coil tap, kill-switch). Notice the QDD is almost as deep as the selector switch, hence the big whole hacked out underneath!