A 'locked' mobile device is one that has been restricted by software so that it can only be used with a single network or carrier.
'Unlocking' a phone means that it can be used with another SIM card/carrier - and in another country. The unlocked handset may still display the original network's branding and may not support the features of the new carrier. Most phones can be unbranded by uploading a different version of the phone's internal software or 'firmware'.