For use with another network (he’s using T-Mobile). Instructions on how to do it are here (it’s a ten step process, just scroll down — I linked to the archives) or you can buy his on ebay.
Doesn’t this violate the terms of use with the iPhone and can Apple stop you from using another carrier?
Update: Engadget reports that iPhone has been unlocked using software only:

The iPhoneSIMfree.com team called us up to prove their claim that they cracked Apple’s iPhone SIM lock system, and prove it they did. (No, we don’t have a copy of the unlock software, so don’t even ask us, ok?) The six-man team has been working non-stop since launch day, and they’re officially the first to break Apple’s SIM locks on the iPhone with software. It’s done. Seriously. They wouldn’t tell us when and how they would release it to the public, but you can certainly bet that they’ll try to make a buck on their solution (and rightly so). We can hardly believe the iPhone’s finally been cracked. No, scratch that — we just can’t believe it took this long.

Go read the details (they have video!).