It is the process of modifying the operating system that is already operating on the iPod. This process allows the user of the phone to gain more access and control over the device. These freedoms include the ability to bypass Apple restriction vetted on the iPod. Visit ipod.about.com/od/iphonesoftwareterms/g/jailbreak-definition.htm for more information.
Hacking it do u can get a bunch of stuff apple doesn't allow! :) it legal now, but it can be hazardous to your iPod/iPhone. Also, if u don't want your iPod/iPhone to be jail broken anymore, you can restore it back to its original settings in iTunes on your computer. Hope this helps :)