It sounds like tapi.dll is corrupt. It's a library used by programs for control of the modem and telephony applications.
The solution is to retreive a new copy of that file from your Windows 95 CD and copy it to your C:\Windows\System folder. Then you have to remove and re-install dial-up networking. This must be done with the Add/Remove Programs menu, under the Windows tab.
Here's how it's done.
Here's how to extract tapi.dll from your win95 cd.
And here's how to uninstall and reinstall dial-up networking.