When one looks into a palantír, one can communicate with other such stones
and anyone who might be looking into them; beings of great power can manipulate
the Stones to see virtually any part of the world. They were made by the Elves of
Valinor in the Uttermost West, by the Noldor and maybe even Fëanor himself.
Many palantíri were made, but the number is not known. Some had power over other
Stones. They were of various sizes. The larger stones allowed one to walk around
them, thereby changing the viewpoint of its vision. The Master Stone was kept in the
tower of Avallónë on Tol Eressëa, but no record is made of successful communication
from any palantír of Middle-earth to this one. They are believed to have a power over
people, as seen from the experience of Peregrin Took and the Orthanc-stone.
However, it is unclear if Pippin's compulsion to use the Orthanc-stone was imparted
by the stone itself, or if it was a result of Sauron's influence over it. According to
Gandalf, it is beyond the skill of both Sauron and Saruman to create the palantíri and
that Sauron cannot make the palantíri "lie", or create false images (though he could
show selective images to create a false impression on the viewer).
The stones' gaze can pierce anything except darkness and shadow. A technique
called shrouding was used when something was to be kept secret from the enemies'
eyes. Knowledge of this technique was lost long ago, although Sauron probably knew of it.
Text taken from Wikipedia.
This particular palantír was given by the Elves to keep a line of communication with the Emperor
through the dimensions so that if either fell into crisis the other may come to their aid.