[Question] What do i do to be able to use my iPhone?

Hi I live in australia and just bought an iPhone from a friend of mine. It is a 8gb 3G one. I am currently with 3 so i put that simcard in but it says it is not a valid simcard. What do i do to be able to use it? I plug into computer but iTunes says it is not activated? Cant get past the screen on iPhone where it says connect to iTunes.

Sorry if this is a really stupid question, but i dnt understand all this "jailbreaking", and what program i should be using. I tried the quickpwn program but my iPhone wasnt showing up on it, so that didnt work for me. However, this may be because im not using the right firmware? dont know what it is, and dont know how to check/ change. Maybe this is the answer to my problems. Any advice and help would be greatly appreciated.

Start here and jailbreak then unlock... Or ask your friend who sold you the phone if it is possible to pay an unlock fee to the carrier he was with.

iClarified - iPhone - How to Select an iPhone Unlock/Jailbreak Tutorial

ok thats a nice table. 1 more question. whats the difference between jailbreaking and unlocking?

And how do i know what firmware my iPhone has? i noticed that it needs to be a specific firmware to jailbreak with some programs

jailbreaking - making Iphone to allow for installing 3rd party application
unlocking - Making Iphone to work with any carrier including official one

@ gkscit- what do you mean by the official one?Is it a newer version of GSM sim?I haven't heard about it.
By the way I have a question.One of my friend's iPhone is not recognizing his o2 sim.But when I tried it with my phone then there is no problem.
Can you pls tell me that what is wrong with his phone?