What is SIM lock ?
A SIM lock, simlock, network lock or subsidy lock not to be confused with PIN or PUK code
is a capability built-in to GSM phones by mobile phone manufacturers. Network providers use this capability to restrict the use of these phones to specific countries and network providers. Currently, phones can be locked to accept only SIM cards from one or more of the following:
Countries (the phone will work in one country, but not another)
Network/Service providers (e.g. AT&T Mobility, T-Mobile, Vodafone, etc.)
SIM types (i.e. only specific SIM cards can be used with the phone).
In some countries, most mobile phones are shipped with country and/or network provider locks.
In addition, these locked phones tend to have firmware installed on them which is specific to the network provider. For example, if you have a Vodafone or Telstra branded phone in Australia, it displays the relevant logo and may only support features provided by that network
(i.e. Vodafone Live!). This firmware is installed by the service provider and is separate from the
locking mechanism.

Types of SIM locks
The country lock only allows the use of the phone with SIM cards that originated in a specific country or group of countries.

A network lock only allows the use of the phone with SIM cards that belong to a specific network.

The most common lock is the service provider lock (SP-lock). Many different service providers
may use the same physical network (e.g. MVNOs). An SP-lock ensures that the handset is
only used with SIM cards for the same service provider that marketed the handset.
Service providers sometimes substantially subsidize handsets, and locking the handset
improves the odds that its use will economically benefit the service provider.

The most restrictive type of lock which can be used is the full SIM card lock, which means that
a phone will only work with one SIM card. If that SIM card malfunctions or is damaged, the phone
will no longer work and must be serviced.

Some carriers may have separate locks for the different countries they operate in, so that
a phone purchased in America may not work with a carrier's British counterpart or vice-versa.
(wiki)