As TUAW has posted about in the past, "Jailbreaking" the iPhone means opening up the underlying file system on the phone for full read/write access; on a vanilla iPhone, only the 'userland' data is accessible to users and apps. The term is derived from Unix jargon, where a "chroot jail" is the limited section of the file system that an underprivileged app can access.
A jailbreak allows third parties to install and run any software they want, rather than the subset of iPhone apps approved by Apple and distributed through the App Store. Before Apple's official SDK was released, jailbreak apps were the only native (non-web) apps on the platform aside from the built-in apps that shipped with the device.
Many iPhone technologies debuted first in the hobbyist jailbreak community before ever appearing in official Apple firmware. Jailbreak-first features included copy and paste, spell checking, application folders, rotation inhibition, multitasking, find-my-iPhone, and more. In terms of iPhone possibility and expression, the jailbreak community has led the way.
The new ruling allows both firmware and software unlocking. Until now, the iPhone BootNeuter tool was on firm legal ground according to iPhone dev-team member chpwn, but Ultrasn0w's US legality was less clearly defined. After this ruling, he believes that both tools have a green light in the United States.
iPhone dev-team member Nicolas "westbaer" Haunold told TUAW that this ruling clarified that "[Jailbreak/Unlock] is not a legal grey zone anymore." He was quick to add, "It's positive, and awesome, but I think barely anything will change."
The EFF has posted a statement celebrating their victory. TUAW has contacted Apple for a statement on the Library of Congress decision but has not heard back at this time.
[thanks to Craig for the tip!]
Editor's note: We did receive an email directing us to their ruling page. More on this important ruling at Engadget and Download Squad. It appears you are now able to, in some cases, rip DVD's legally (for educational purposes, it appears). Further, if you have software protected by a dongle that no longer functions and no replacement is available, you're now legally allowed to circumvent said protection.