Activation:

Activation is the process by which a new (or newly restored) iPhone or iPod touch can get by the "Emergency Call Screen" (iPhone) or "Connect to iTunes" screen (not to be confused with Recovery Mode; the activation screen has a battery icon in the top right corner to indicate this) to access the SpringBoard. The code in charge of this resides in lockdownd, which is always running on iOS and monitors the activation status of the device. Lockdownd patches (which requires a jailbreak whereby a patched kernel can be booted by iBoot without dynamic libraries dynamically patching in RAM) activate your phone and obviate the need to activate legitimately through iTunes with an official carrier however the iPhone cannot be used to communicate unless a unlock is found for the baseband. Lockdownd patches are only used on the iPhone as the iPod touch has never been denied activation regardless of firmware, country etc.

Unlocking:

Unlocking is the removal of SIM restrictions on the modem, allowing the use of the iPhone on any carrier. There are 2 types of iPhone unlocks:


1. software unlock: the iPhone is unlocked by a software
2. hardware unlock: modification have to be made to the actual hardware to unlock the phone

Software unlocks are safer because they do not modify your device and can easily be reverted back. Soft unlocks are mostly developed for free by the Dev Team, an international group of iPhone hackers. Hardware unlocks are a little tricky and usually cost money. In clear, if you want to unlock your iPhone, you can do it for free by with a safe software unlock.