Jailbreaking is the act of modifying the official firmware in order to run applications not approved by Apple. Chief among those applications, at least for the iPhone crowd, is the SIM unlock that allows the phone to be used on unofficial cell phone service providers.
The Dev-Team has found holes in previous versions of the iPhone OS that allow this code modification and has developed tools to make exploitation easier for the average user to accomplish. Once implemented, the jailbreak process installs an app that acts an unofficial App Store of sorts. The iPhone or iPod touch user can browse and install games, utilities, themes, and general applications. Cydia, one of these installer apps, even has a store with applications for sale.
Traditionally, when Apple releases a new iPhone OS version, that software upgrade breaks any jailbreak and SIM unlock present on the device. And so, you end up with the cat-and-mouse game that Steve Jobs alluded to shortly after the first firmware loophole was exploited and the original iPhone was unlocked.
Well, the mouse has stolen the cheese once again, and the Pwnage Tool released today will jailbreak the latest firmware, version 3.1.*
The big asterisk at the end of that previous sentence is that the Tool will only work on about half of the devices that use the iPhone OS -- only the original iPhone, original iPod touch, and iPhone 3G. The iPod touch line just released, as well as the 2nd generation iPod touch and the iPhone 3GS, cannot be jailbroken at this time. That means if you've already upgraded to 3.1 on your 3GS, you still won't be able to SIM unlock it as of the time of this post.
So, if you want to SIM unlock your iPhone 3G or the original model, Pwnage Tool 3.1 should do the trick. On the 3G, you'll need to use Icy or Cydia to also install the ultrasn0w app that actually performs the software unlock; however the original iPhone should be unlocked without this additional step.
You will need a Mac to run Pwnage Tool 3.1, but a Windows version is expected in the near future. Also expected soon is redsn0w, for both Mac and Windows, that further simplifies the jailbreak process by avoiding the need to create a custom firmware package.
Keep in mind, if you've been waiting for a jailbreak solution before upgrading to the latest firmware, many users have had fairly substantial issues with iPhone 3.1. My fellow TUAW blogger, Josh Carr, has reported that lots of iPhones and iPod touches are working poorly after upgrading. You may wish to hold off and stick with 3.0 or 3.0.1 until a solution is found, either by Apple or some other group of smart people.
But, if you're so inclined, you may find links to download Pwnage Tool 3.1 on the Dev-Team's official blog. Make sure to read the instructions thoroughly, and take heed of all of the warnings. They are there for a reason.