There are so many strange versions floating around about what publishers do and don't do. I think it's time to give a sort of overview of the process.
Acquisitions editors are in charge of finding new manuscripts/proposals for the publisher. There are a few ways your work may end up in front of an acquisitions editor:
-The slush pile. This is the term for unsolicited manuscripts. If you mail a publisher a manuscript or proposal that they haven't requested, some of them will just mail it back to you unread. Others will pile it up in their offices until a reader gets around to checking it out. This can take anywhere from days to many months.
-Request from a query. If you send an editor an e-mail or letter about your book, the editor may request sample chapters (a "partial"), the whole manuscript, or (in the case of nonfiction books) a book proposal. Now your work isn't "unsolicited" anymore-- it's solicited. Solicited work tends to get read faster than unsolicited work, but it can still be several months before you get a decision.
-Through an agent. Your agent can get your work read fast if he/she has any clout. Publishers trust agents to bring in projects that are appropriate and of high quality. Particularly if you write novels, it's to your benefit to have an agent. Real agents don't charge you anything upfront-- they take a commission from your advance and royalties (15%, usually).
-Recommendation or personal meeting. An author may recommend you to his/her editor, or you might meet the editor at a conference or workshop. This puts you into the "solicited" category.
You don't need an agent to submit to most publishers.
I have never heard of an editor just mailing someone a contract-- the editor will call you or e-mail you to tell you that he or she is interested.
At most publishing houses (except the very smallest), the editor will have to pitch the book at an editorial meeting. The editorial board (or the publisher alone) will say yes or no. The marketing people do their projections to see how much profit they think the publisher could make, and what the budget should look like. They research competing books and figure out how well they sold. They may suggest a new title. Then the editor makes an offer. You or your agent go back and forth negotiating until everyone's happy. You sign the contract and get the first part of your advance. (Advances are typically paid in 2-4 parts.)
2. Developmental Editing
Now you have an editor. If you sold the book based on a proposal or partial, the editor may advise you about what direction he/she wants the book to take, the word count, etc.
You are NOT expected to hire an editor before you submit your work. You are not expected to pay anyone anything. The editor (hired by the publisher) will work with you, making substantive suggestions. The editor may point out where the plot is getting too hairy or complicated, where things are dragging or getting confusing, a character that needs to be cut or better developed, etc. You work back and forth with the editor until you're both happy with the substance of the book.
Then it goes to the copy editor, who works on grammar, spelling, continuity, fact-checking, etc. You will have a chance to review the copy editor's work. The copy editor may have several questions for you marked on the manuscript. If you disagree with any of the copyedits, you can mark "stet" next to the copy editor's marking. ("Stet" means "let it stand.")
Then it goes to layout, then proofreading. At this point, your manuscript is laid out just how it will be when it's printed. The proofreader checks for last-minute typos and formatting errors (A-heads that should be B-heads, widows and orphans, wrong italics, tables in the wrong spot, etc.). You get the proofs (also called galleys/gallies) and this is your last chance to review before the book is printed. If your book cover hasn't been finalized yet, it should be now.
Now's when your publicist should swing into high-gear. You've probably already filled out a questionnaire by this point detailing any publicity avenues open to you, your speaking experience, your travel plans, etc. The publicist will write a press release, go over a list of where to send advance review copies (the major trade magazines such as Publishers Weekly, Kirkus, Library Journal, etc. get them first), ask you if you want to do local book signings, figure out publications and media venues likely to feature you and make contact, etc.
When people complain that publishers "don't promote" their books, what they usually mean is that they rarely send authors on tours anymore, and they rarely take out ads in papers, magazines, or TV. Simple reason: They typically don't pay off. Imagine paying for an author to fly around the country and stay in hotels, only to find that no more than a dozen people show up at these signings. Imagine paying big bucks for an ad and finding that it sells two copies. Much more important are reviews, interviews, speaking engagements, bookstore placement, etc.
Your book's cover art and description will go into the publisher's seasonal catalog, which then gets sent out to bookstores and libraries. The distributor's sales reps pitch the current season's titles (and any backlist titles that the publisher wants to draw attention to) to the bookstore buyers. The sales reps tell the buyers about any planned publicity-- buyers are more likely to order the book if they know it has a big publicity budget or the author has guaranteed media mentions coming up.
The buyer places orders. The publisher decides whether or not to pay for front-of-the-store placement. Those books you see stacked on tables in the front of the store aren't there by chance-- they're there because the publisher paid for those spots!
The publisher also decides whether to invest in direct mailings (postcards, usually), Amazon promotions, a launch party, etc.
6. Exploiting Other Rights
If the publisher kept these rights, they will attempt to sell the book rights to overseas publishers, book clubs, film companies, etc. You will each get a share of the money. If you kept these rights, you or your agent can work on selling them.
7. And So On
Your publisher may enter your book in contests, put an ad for you in Radio Television Interview Report or similar guest-finder services, bring your book to book fairs, seek out "special sales" (bulk sales to corporations or organizations), offer your book as a giveaway in contests, and other such ongoing promotions. Generally, your publicist will have a limited window of time (3-6 months) when your book is actually on the "top of the pile"-- then the publicist needs to concentrate on other books. But even years later, you can still ask the publicist to send someone a review copy, send you flyers to bring to a speaking event, etc.
All the above is based on my experiences. I have written for the following companies, listed in approximate order from smallest to largest: Moo Press, JayJo Books, Mason Crest, Nomad Press, Hunter House, Lyons Press, Adams Media, Andrews McMeel, McGraw-Hill, Penguin Putnam, and Simon & Schuster.
Okay, other published authors and editors, what did I leave out? Anything else you want to add?