There are two ways to make music together:
1. You assemble everyone in the same physical space: a recording studio, a rehearsal room, a garage. You can collaborate and record together or separately–but you do so in the same place.
2. People work independently on a project, separately by time and space, sending their parts to the other musicians as they’re completed using Dropbox, FTP or some other file transfer method. This can work but precludes those weird creative sparks that can happen when multiple people work together on a song in real time.
Yes, there are ways of connecting people over long distances but there are plenty of latency issues. Now, though, there’s something called Source-Connect, a digital software program that seems to work rather well. The BBC has this story about an English band called Electric Litany who were able to work with producer Alan Parsons in real time even though they were in the UK and he was in California. Read up on them here.