Thought id start a threadwhere I will post help for people upgrading their iphones, if you have any questions please feel free to ask!
JAILBREAKING: changing the phone so that it can accept and run 3rd party applications (applications not from the apple app store)
UNLOCKING: Being able to use any sim in your phone
INSTALLER: A 3rd part program that is installed on your phone and which you can use to upload other 3rd part software onto the phone, installed automatically when you jailbreak 2.0.1
CYDIA: An alternative to installer, used to be the only loader available for 2.0 jailbroken iPhones although from 2.0.1 Installer is making a comeback. Installed automatically when you jailbreak 2.0.1 and above