The Mode Control Panel is the most direct way of sending commands to the aircraft you're flying.  The Mode Control Panel can manipulate the three main factors of flight:  Speed, Heading, and Altitude.  Inside every field of the MCP are two numbers.  The upper number is your aircraft's current value, and the lower number is your aircraft's target value.  Consistent with the other flight deck controls, the Mode Control Panel uses the same color scheme.

The Mode Control Panel vs. The Flight Management System:

The Flight Management System (FMS) is a computer onboard your aircraft that controls the navigation, performance, flight planning, and guidance aspects of flight.  The FMS navigation component determines where your aircraft is, the FMS performance component calculates necessary performance data, the FMS flight planning component allows for the creation and modification of flight plans, and the FMS guidance component issues commands necessary to guide your aircraft along the route you programmed into your FMS. 

The guidance component of the FMS compares the current path of your aircraft with the programmed flight plan.  This is monitored three-dimensionally, by flying from waypoint to waypoint and by obeying crossing restrictions.  The FMS guidance component is engaged through two processes: Vertical Navigation (VNAV) and Lateral Navigation (LNAV).  As the name implies, VNAV is responsible for the vertical path of your aircraft, and LNAV is responsible for the lateral path of your aircraft. 

In LNAV, the FMS guidance component uses the data from the performance and navigation components to calculate the necessary maneuvers (thrust and roll) to maintain the lateral path.  The data from the navigation component is also used by the FMS to display information correctly on the Map display. 

In VNAV however, the guidance component of the FMS uses the data from the navigation and performance components to calculate the necessary maneuvers (thrust and pitch) in order to maintain the vertical path while meeting the crossing restrictions, which are accessed from the database of the FMS flight planning component.   The data from the performance component is also used by the FMS to calculate things like Top of Descent (TOD) .

When using the MCP to control your aircraft, the FMS is no longer in VNAV or LNAV.  This means that current information will not be compared with known target information.  More simply put, your FMS will not check to see if your aircraft is behaving properly.  When your aircraft's MCP is in Speed Select mode (SPD SEL), the current speed of your aircraft is unrelated to your lateral or vertical path.  Similarly, with the MCP in Heading Select mode (HDG SEL), the current lateral position of your aircraft is not related to your lateral path.  With your aircraft's MCP in Flight Level Change (FLCH), the current altitude of your aircraft is unrelated to your vertical path.  It is important to note that the path of your aircraft can be controlled by either the MCP and the FMS guidance component, but not both.

The speed values shown in the MCP can be displayed in either units of Mach or knots.  You can toggle between these two settings by clicking the radio button labeled "MACH" in the speed field of your aircraft's MCP.  If this button is selected, all the numbers displayed in the speed field of your aircraft's MCP will be as Mach numbers.  If this button is not selected, the numbers will be displayed in knots.  The Mach radio button also affects the display of the speed target button, which can read either "MACH TGT" if your speed values are in Mach, or "CAS TGT" if your speed values are in knots. 

The Mach / knots setting of your aircraft's MCP also determines how the speed field in your aircraft's FMS VNAV panel are displayed.  Notice there is an identical "Mach"-labeled radio button located in the FMS VNAV panel.  These two buttons are permanently linked, so that they always match.

To change the speed of your aircraft using your MCP, you must first be in Speed Select mode.  If you want to change your speed with VNAV, then you must change your speed using the FMS VNAV panel.  Clicking the radio button labeled "SPD SEL" in the speed field of your aircraft's MCP will put your aircraft in Speed Select mode. 

Once in Speed Select mode, the speed target button will become active.  Clicking on this button will display a drop-down menu of different speeds to assign to your aircraft. 

When you select a speed value from the drop-down menu, it will display in magenta in the target speed field of your aircraft's MCP.  You can also use your keyboard to directly type in the target speed field.

To change the indicated heading of your aircraft, simply click on either the "LEFT" or "RIGHT" target heading button, depending on which direction you want to turn.  This will display a drop-down menu which lists headings in increments of ten.
 

When you select a heading from the list, it will display in magenta in the target heading field of your aircraft's MCP.  You can also use your keyboard to directly type in the target heading field.

Your aircraft needs to be in Heading Select mode to fly an assigned heading.  If you selected a heading with your aircraft in LNAV, you will notice that the MCP will automatically disengage LNAV for you, and select the radio button labeled "HDG SEL"  You can also choose to select the "HDG SEL" radio button manually before you input a new heading.

At the bottom of each of the drop-down menus for heading is an item labeled "MORE"  By dwelling (not clicking) on this menu item, an adjacent list appears, which displays the other headings not shown in the previous list.  This feature allows for pilots to make turns greater than 180 degrees.

To change the flight level (altitude) of your aircraft, click on the target altitude button, labeled "SET ALT"  This will display a drop-down menu consisting of commonly issued flight levels, "HIGH" and "LOW" sub-menus, and an "ALT HLD" (altitude hold) item. 

The ALT HLD item is used with aircraft in the climb phase of flight.   The purpose of the altitude hold function is to allow an aircraft to level off during a climb in order to increase its speed.  An increase in speed can then be used to resume a climb with less difficulty.

Dwelling on either of the "HIGH" or "LOW" items will display their respective sub-menu, which lists the available flight levels.  The "HIGH" list contains all flight levels of 24000 ft and above.

The flight level can be changed with the MCP in both VNAV and FLCH.  Which of these two modes and your aircraft's current phase of flight determine the altitude behavior.

You can also use your keyboard to directly type in the target altitude field.

During the cruise phase of flight (before the VNAV TOD) and with your aircraft in VNAV, your altitude changes are best done through the FMS VNAV panel's cruise altitude field.  Flight level changes can be done with the MCP before reaching the TOD, but they will be displayed in the target altitude field of your aircraft's MCP in white, indicating the value is selected, but not being executed.  The VNAV mode does this to preserve your programmed FMS route.  Upon reaching the VNAV TOD, the value will turn magenta, and will be the engaged target altitude.  If your aircraft is in FLCH (flight level change) mode, the selected altitude will be engaged immediately with no consideration of your aircraft's programmed FMS route. 

In the descent phase of flight (after the VNAV TOD), flight level changes are best done through the MCP.  In VNAV, if a crossing restriction occurs between your aircraft's current altitude and the selected target altitude, the FMS will control your aircraft to meet this crossing restriction while descending down to the target altitude.  However, if your aircraft is in FLCH, then your aircraft will simply descend immediately to the target altitude with no consideration of your aircraft's programmed FMS route.

In the climb phase of flight (before the VNAV Top of Climb (TOC)), flight level changes are best done through the FMS VNAV panel's cruise altitude field.  In VNAV, if a crossing restriction occurs between your aircraft's current altitude and the selected target altitude, the FMS will control your aircraft to meet this crossing restriction while climbing to the target altitude.  However, if your aircraft is in FLCH, then your aircraft will simply climb immediately to the target altitude with no consideration of your aircraft's programmed FMS route.  Flight level changes can be done with the MCP before reaching the TOC, but this compromises VNAV.  If you select a different altitude with the MCP, once your aircraft reaches that target altitude, your MCP will switch from VNAV to FLCH, and the cruise altitude field in the FMS VNAV panel will be green, indicating your aircraft is out of VNAV.  Flying with ALT HLD will also compromise VNAV in the same way.