UNLOCK:
This is when you would like to use your phone with another carrier, I.E. Tmobile. If you unlock your phone you will likely get the jailbreak. ALL UNLOCKING DOES is let you use the phone with another service provider. THATS ALL
Jailbreak:
THis lets you put third party apps (apps not approved by apple and non-app-store apps) onto the phone. These can include games, gameboy advanced (yes, on the iphone/itouch), videocamera. They let you make your iphone truly yours, the way you want it.
IF you are using a 2g iphone (with cingular) you don't need to worry about unlocking the phone. Just update to 2.1 and use 'quickpwn 2.1' for windows (or pwnage tool for mac) and follow the directions to jailbreak the phone.
If you are using it and you got it unlocked, just download itunes 8 and restart your computer. JUST HIT THE UPDATE BUTTON, not restore, UPDATE, and the iphone will update to 2.1 and REMAIN UNLOCKED. You will lose the jailbreak. BUT, simply use quickpwn 2.1 or pwnage tool and re-jailbreak it.