It hacks your ipod and you can add things that the stock interface and software would not allow. It allows for more customization options and more changes to basically anything you want. Once an ipod is jail broken, there is really no limit to what you can change and customize.
It removes all of the limitations of the iPhone and allows root access to the operating system. On the Android its called "rooting". Its very useful for the iPhone - allowing you access to media outside of iTunes among other things..... Jailbreaking will void your warranty (if they find out you did it). You can unjailbreak as needed.