Pretty much hacking the phone and "making it yours" (even though many say the iphone is perfect as is) Its called Rooting if you are from android.
and yes its legal. It voids your warenty, but if you restore the phone the warenty is back.
The goods are like I said you "make it yours", add custom skins, change the way the phone works etc The bad pretty much is if you don't know what your doing you could screw up the phone. Just follow the links above and jailbreak only if you want to, not because "Everyone else is"