kathy, several groups of hackers have found ways to unlock the iphone so it can be used on any non-cdma network (cdma networks are verizon and sprint, basically those that don't use SIM cards). It's also very coveted to have an unlocked iphone overseas since there has not yet been a release outside the US, so with this new free hack, people overseas can pop in their existing SIM cards into an unlocked iphone to use on their home networks.
Companies 'lock' the phones to the their network so phones purchased through them can only be used on their network. Apple signed an exclusivity deal with AT&T for the iphone, now that the hack is out people are free to use the iphone on many networks without having to sign a 2yr contract with AT&T.