A locked phone is only able to use a SIM card from the carrier it is locked to. An unlocked phone is able to use a SIM card from any GSM carrier. This helps if you travel internationally, since you can use a prepaid SIM card from a carrier in another country and avoid international fees from your carrier. It also helps you sell your phone easier, since the buyer can use it on any GSM carrier.
To find out if it is unlocked go to options>advanced options>SIM card and type "MEPD" without quotes. You won't see what you are typing. If it is unlocked SIM and network will be disabled.