When hacking the iPhone there are two categories to worry about. The iPhone is essentially a computer with a GSM modem attached to it. So there is the Operating System for the computer half of the phone and the Baseband is like the OS for the Modem half.
When Hackers start to crack the iPhone the first thing they usually hack is the OS, by finding a method to Activate and Jailbreak the phone. All this means is that they've found a way into the OS and gained read/write accesss to the file system. This is fine if all you want to do is use tour iPhone as an iPod Touch. If, however, you want to make and receive calls you must also hack the modem. This requires hacking the Baseband so that it will accept non-AT&T SIM cards, this process is known as unlocking.