Here is some general terminology you may hear in reference to iPhone hacking. People often confuse these terms so I will attempt to help clarify them:
Unlocking vs Jailbreaking – Jailbreaking is the process of opening the phone up for installation of 3rd party apps. Unlocking is the process of allowing non-approved SIM cards to be used on your phone. If you have an approved provider, you only need to jailbreak your phone, not unlock your phone.
Activate – The iPhone has two levels of SIM card protection. The first is in the baseband and requires some form of unlock to bypass. The second is in the operating system and requires either iTunes or a hacked lockdownd (hactivation) in order to bypass. Most jailbreak methods will also hacktivate your phone for you to bypass activation. When the phone comes from Apple, it has on it only the option to slide for emergency call. Activating your phone will allow you to see the icons on the home screen. Activation is required for any form of unlocking.
Hacktivate - Activation of the iPhone via patching rather than via iTunes.
Baseband - The baseband is a subsystem on the phone that handles phone line communication. Modifying this subsystem is how unlocks are achieved. These are updated in iTunes with new firmware versions. iTunes will not downgrade your baseband. Baseband versions are like 4.01.13_G (1.1.1) 4.03.13_G (1.1.3). Currently, an iTunes restore will not modify your baseband unless your baseband is erased or downgraded prior to the restore.
Bootloader - The bootloader is the first thing that runs on the phone. The bootloader is not upgraded by iTunes (yet). Phones have the same bootloader that they came with. There are two shipping bootloaders, 3.9 and 4.6 (out of box 1.1.2 and newer). The bootloader can be downgraded using hacking methods. It is risky downgrading your bootloader because of something goes wrong, you cannot repair it (at the time of this writing).
Firmware – The firmware is the operating system installed on your phone. The firmware versions include 1.0.2, 1.1.1, 1.1.2, 1.1.3, 1.1.4. All jailbreaking only affects the firmware, not the bootloader or baseband. This is why restoring will undo a jailbreak but will not affect an unlock.
Restore / Upgrade – iTunes provides two options to change the firmware on your phone. Restore and upgrade. Restore is a full erase and reprogramming of your device. This will result in a factory fresh device. All songs and contacts are wiped out. Upgrade will only wipe out the smaller disk partition leaving all your songs and settings intact. Upgrade is only useful if you are trying to go from one version to the next version of firmware. It will not solve any problems on your phone unless they are naturally solved by the new firmware. I generally recommend using restore in all cases.
TurboSIM, Hypercard, X-Sim, StealthSIM – These devices tricked the phone’s baseband into thinking that an authorized SIM card was inserted. In effect, the phone appeared unlocked. These devices no longer work on newer phones.
DFU Mode vs Restore mode – DFU (device firmware upgrade) mode is a special mode that bypasses the operating system and lets you upgrade the device. When in DFU mode, the phone will have no display on the screen. Restore mode is more common. In this mode you can also restore or upgrade your device, but it is not as drastic as DFU mode. Many restore problems can be solved by using DFU mode.