Unlocked means the Iphone can be used with any carrier. So instead of just being able to use it only on AT&T, you can use it on T-mobile. You can only use the unlocked Iphone on GSM networks...meaning networks that use SIM cards. So Sprint and Verizon cannot use the unlocked Iphone.
Most likely you can take the Iphone and use it overseas. It has to be unlocked though. I had an unlocked Iphone and used it in Taiwan.
Let me know if you have any other questions about it.
