How does the ISP measure my downloads and charge me?
as for me I prefer to use ProteMac Meter for monitoring bandwidth
You are charged based on the packets moving in and out of your computer (includes upload and not only downloads) and are measured through a bandwidth management software either hardware or software based.
It's also possibly that you're actually connecting to web via the proxy setup by your ISP. In that case it's rather easy because all of the traffic will be going through their server where they likely have some kind of bandwidth allocation/monitoring system in place.
They can measure your bandwidth usage from output, connected to your ip , account and the modem you are using, which can work for the isp the same way electric companies can tell how much electricity you've used.
My idea is that they pull in the data at fixed intervals from the router logs. Maybe, somebody can give a more detailed answer to this.