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"Jailbreaking" is hacking your iPhone so it will run any type of app, even those that are not approved by Apple. The process of jailbreaking was illegal until recently, but people have been doing it in order to fully customize their phones, run specific apps or unlock their iPhones so they can choose any GSM Network for service.

Edit: First of all most jail breakers don't jailbreak to use any type of app. This is called pirating. As a matter of fact, a lot of jail breakers are against it. Jailbreaking will not allow you to unlock your phone...That must be done by your carrier. This is quoted from a website called jailbreakqa.com

"What's the difference between jailbreaking and unlocking?

Jailbreaking means removing restrictions in your device's default software so that it can run software not approved by Apple, such as extensions (tweaks) and other packages installable via Cydia.

Carrier unlocking is the process that allows an iPhone to be used as a phone on other carriers that aren't supported, such as an AT&T iPhone being used for texting and calling on a T-Mobile plan with a T-Mobile SIM card.

Jailbreaking does not automatically carrier unlock your device; they are different processes. See this guide to carrier unlocking options."

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