Babies are able to interact and respond to parents from birth through facial movements and gurgles and squeaks. All of the interaction they experience with you over their initial years will help them grow a vocabulary that will serve them very well in the future, but you need to know how to help them to give them the best start.
From three to six months is a crucial stage in a baby's life. At this point your baby is learning how people interact with each other. To help them grasp as much as they're able to, hold them close to your face so they look into your eyes, and smile at them all the time to encourage them to reciprocate. When your baby babbles, imitate the sound to show them how people will talk to each other instead of separately. If you pick up on them trying to make the same sounds you do, repeat the words you said or the noise you made to help them learn it.
From nine to twelve months a baby will begin to communicate with adults as well as understand more of what they say. If someone says, "Where's Mummy?" they will look for their mother. They will also start to use hand motions to indicate what they want. Lifting their arms into the air could mean they want picking up, bringing a toy over to someone could mean they want to play with them, and they should have grasped the concept of waving goodbye to someone because they're leaving. At this point children will do certain things when asked, but they are still learning most.
Between eighteen months and two years a child will be starting to put words together to say certain things that make sense in a way. They will say things like, "car go" or "want juice" all of which is encouraging and mostly helpful. At this point communication is easier with a child and parents can feel a little relived because they don't need to go through such an effort to do everything.
From the age of two a child will start to learn more words and be able to hold small conversations, as well as pretend play with their imagination. This is the point from which it's important to encourage the use of as many new words as possible, as children will pick them up and use them, growing their vocabulary faster than other children might be.