What does unlocking something do?

Lets you use it with any GSM provider...

oh, so you could use anything lik verizon or something instead of at&t ?

GSM provider, meaning a provider who offers GSM service.

Verizon is not GSM, so no they would not work. T-Mobile would since they are GSM.

what is GSM? i could probably just google that huh.

most of the world uses gsm
if you live in the US, your choices are at&t/cingular or tmobile, thats it

GSM is a typically 4G (4th generation) network standard that is extremely fast and power-efficient. While AT&T uses an older version of GSM what's often called "2.5G" or "3G" (in just a few phones), most GSM providers have had 4G for a year now and are working on 4.5G/5G (it's still in discussion) phones. The standards are all backward-compatible, so basically if you unlock your iPhone you can use it on a much faster GSM network, streaming DVD-quality (and HDTV--HD-DVD/Blu-Ray, if the 5G standard plays out like we think it might) movies directly on to your phone.. the current AT&T network isn't fast enough to do that. The bonus is, in addition to being much faster, the iphone will respond much faster because less processor time is spent decrypting the older 2.5G data stream. A final reason that's driving a lot of people to do this is that battery life should be much longer - initial reports from people that have hardware unlocked have suggested 50% improvement in battery life.