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What does it mean when an iPhone is unlocked or jailbroken?

I went on ebay and almost every iPhone says that it’s unlocked and/or jailbroken. Can someone explain in simple terms and tell me the if there are any key differences with an “original” iPhone?

Whether or not a phone is “Locked” or “Unlocked” simply means whether or not the phone can be easily used with any service provider, or if it is tied to a particular carrier.

Many cell phones (not just iPhones) are locked to the carrier that you purchase them from, meaning if you decide to change carriers later (say from AT&T to T-Mobile or Verizon) you will not be able to use your existing phone with them. So the advantage to buying an iPhone that is unlocked is that you can use it with other carriers.

Jailbreaking is more specific to the iPhone, and means that the software on the phone has been modified to allow you to run 3rd-party applications on the phone, even if they have not been approved by Apple. The most common reason for doing this is to get extra functionality that is not currently allowed by the iPhone otherwise, such as MMS messaging, video streaming, or using your phone as a wireless modem (tethering).

Jailbreaking the phone allows one to install applications that provide these functions, but with the caveat that future software updates provided by Apple may render the phone completely inoperable.

Go Phone SIM Card in Iphone 3G (Non-Jailbroken and NOT Unlocked)