Here's what Wikipedia and an article at PC World say about jailbreaking:
"iOS jailbreaking, or simply jailbreaking, is the process of removing the limitations imposed by Apple on devices running the iOS operating system through use of custom kernels. Such devices include the iPhone, iPod touch, iPad, and 2nd Gen Apple TV. Jailbreaking allows users to gain root access to the operating system, allowing iOS users to download additional applications, extensions, and themes that are unavailable through the official Apple App Store. Jailbreaking is a form of privilege escalation, and the term has been applied to privilege escalation on other computer systems as well. The name refers to breaking the device out of its "jail."