Twilio and Google App Engine for PHP allows developers to create scalable and reliable applications using the PHP runtime. The application uses the Twilio PHP helper library to send text messages and make phone calls, leveraging the virtualized file system and queuing system of App Engine. To set up the environment, developers can follow Google's Getting started with PHP on Google App Engine instructions and upgrade the Twilio helper library to v3.11+. The application uses URL routing in the app.yaml file to map different URL patterns to individual PHP scripts. With this setup, developers can create a scalable and reliable PHP application on Google App Engine.