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GSM stands for Global System for Mobile Communications. And an Unlocked Phone is a GSM cell phone that accepts the SIM (Subscriber Identification Module) card of any compatible network carrier.
Which means, if you have a GSM phone like Sony Ericsson P990i or Motorola RAZR V3 from Cingular (a GSM-compatible carrier) and you decide one day to shift to T-Mobile (another GSM-compatible carrier), all you have to do is to remove the SIM card allotted to you by Cingular and load in any active SIM card from T-Mobile.
That way, you don't need to buy a new phone if you plan on using a different carrier. All you do is change the SIM card and you're on the other network, seamlessly using their services.
However, this system doesn't work with CDMA or iDEN phones -- the two other kinds of wireless services. That's because, when you purchase these kinds of phones (from Verizon, Sprint and Nextel), your phone is basically "locked into" the service provider's database system and parameters. The phone and the service are, in a way, connected to each other and each other only. So if you're on the CDMA / iDEN network and want to shift from say Verizon to Sprint (or to Nextel), the most direct option you have is to buy a whole new cell phone for that new carrier.
It's for this reason that those who continually "hop" between multiple carriers and do not want to be bothered with compatibility issues, Unlocked GSM Phones from Cingular or T-Mobile are the way to go. The only downside to this is, if you buy your phone from Cingular, all the features, services and buttons on the phone are already pre-configured to those offered by Cingular. So when you decide to use that same phone with T-Mobile, those features (from Cingular) would technically be disabled on that new network.
But that's a minor downside to the flexibility and convenience that unlocked phones offer. And with the number of free cell phones (and almost free cell phones) available in the market, it shouldn't be hard to find the perfect fit between using your phone as-is with your default carrier, and making it work with other services as well.
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