An AM transmission as used on the aircraft band has a single discrete frequency for what is called the carrier. The speech information is carried in what is called sidebands on either side of this carrier frequency. These occupy space, typically 5 kHz either side. The receiver has a filter that is typically 10khz wide, so if you set your receiver to a frequency of 120.000 MHz, the filter allows the receiver to hear anything from 119.995 to 120.005. As long as the station you want is within this band, you will hear it. The same applies to the ground station, so if they are set to 120.000 they will hear anything transmitting plus or minus say 5 kHz from that frequency. Filter bandwidths for 8.33 radios will be much narrower, allowing more stations to use the same chunk of frequency space.