This short FAQ is dedicated more toward GSM Phones (AT&T, TMobile) than cdma phones (sprint, verizon, alltell etc)

What is unlocking?      
When you buy a GSM phone, the Service Provider (AT&T, T Mobile, Orange, Rogers) will set the phone up so it can only be used on their network. This is called locking the phone. Unlocking will allow your phone to be used on any GSM network in the world carrying the phone's frequency just by putting your SIM card in. This only works on GSM networks and as long as the phone gsm band match the carrier band.

For CDMA phones like Verizon and Sprint, is a little different as you need to get permission or register ESN with the carrier in order to use the phone in their network.

Why should I unlock my phone or buy unlocked phone?
1. By unlocking you will be able to use your cell phone with any other network worldwide without restrictions.
2. Increase resell value, since your phone now work with more carriers.
3. Save money when you travel, don't roam, just buy local simcard and use it with your unlocked phone.
4. Switch carrier without buying a new phone.

How many gsm band out there?
There 4 gsm band around the world, 850/900/1800/1900. So the best is to buy phone that support QUAD band.
In America, mostly 850 and 1900.
In Asia and Europe, 900 and 1800

How do I know if the phone is unlocked?
The easiest way is to insert a different/foreign sim card and if the phone accept the simcard and able to make phone call, phone is unlocked!
if the phone display " INVALID SIM CARD" or something similar, then the phone is LOCKED.

How to unlock a phone?
1. Unlocking via code
2. Unlocking via mail-in service
3. Unlocking directly by unlocking tools.

What is unlocking via code?
Basically, send your IMEI from the back of your phone or press *#60# on your phone to certain unlocking companies. The companies will process and if the code is found, send it back with instruction to enter the code back into the phone. Some carrier like TMobile USA allow its customer to request unlock code after certain period of subscription (3-6 months). Just contact their customer service for more info

What is unlocking via mail in service?
For certain phones, the unlocking code is not available and some unlocking companies offer service for customer to mail in their phone and then they will unlock the phone.

What is unlocking directly by unlocking tools?
This is basically the tools used by unlocking companies to unlock the phone directly when the code is not found. Some time when the phone is in permanent lock after several failed attempt to enter the code, direct unlocking is the only way to unlock it. This is gear toward business owner or individual who is interested making some money from unlocking. Please use google for more info.