On picking remote phone, I expected that speaker and phone will be used to communicate, but that did not happened.
Is it possible to use PC's mic, speaker or head set attached to PC? If yes, which software or what setting?
modem-cmd sends only AT commands to modem. To use, PC's sound input/output, you need a tool that will capture media stream from mic and pipe those to modem and capture voice stream from modem.
One possible way of doing that is to configure your modem with Asterisk server.
-Shamit