The Star Trek group of TV shows take themselves very seriously. As such, they try to come up with plausible explanations for how their devices work. In the following case, the explanation doesn't hold.
According to the Star Trek Encyclopedia and the Star Trek: The Next Generation Technical Manual, the universal translator compares both brain-wave frequencies and other patterns of communication. It then selects "comperable concepts to use as a basis for translation". Further, the authors of the Encyclopedia note: "Actually, we figured that Paramount somehow managed to install universal translators in everyone's television receivers, which could explain why so many of the galaxy's life-forms seem to be speaking English."
That's a pretty good explanation, especially the second one, but it still doesn't explain the fact that the aliens' lips (when they have them) also form the same shapes that humans do when we speak English/Federation Standard.
It's apparent that the universal translator is actually a brain-wave
modification device. The control of an alien's mouth muscles is altered
so that English words are produced, while the rest of the mind is blocked from
noticing that it is not speaking its native language any more.
The translator also has a wide area that it affects, since none of the other nearby aliens notice what is happening.
Or, on the other hand, if you accept the explanation that all of our TVs have the universal translator built in, it could be argued that our brain-waves are being altered so that we see these aliens forming English words with their mouths. In that case, the crew of the starship making contact with the aliens would see a mismatch between the word-shapes the aliens make and the translated English words coming from the computer.
You know, I think this last explanation is the correct one. It goes a long way to explain how some TV shows remain on the air.
Captain Picard's lack of manners --
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