The term GSM means - Global System for Mobile Communications. It is the most popular standard for mobile phones in the world. GSM differs significantly from its predecessors in that both signaling and speech channels are Digital call quality, which means that it is considered a second generation (2G) mobile phone system. GSM is an open standard which is currently developed by the 3rd Generation Partnership Project (3GPP). From the point of view of the consumer, the key advantage of GSM systems has been higher digital voice quality and low cost alternatives to making calls such as text messaging.
The advantage for network operators has been the ability to deploy equipment from different vendors because the open standard allows easy inter-operability. Like other cellular standards GSM allows network operators to offer roaming services which mean subscribers can use their phones all over the world. To help you further understand, GSM is simply a standard used by phones to communicate with each other. It is a new standard that has been adopted to all new models of phones and is now so prevailant that it has become the 'norm' in the phone world.
Now to answer your other question, with respect to locked and unlocked phones. A phone is locked when it is attached to network. For example if you go to AT&T and purchase a phone from them then that phone is said to be locked unto the AT&T network and as such it cannot work on another network such as SPRINT or NEXTEL.
Thus an unlocked phone is a phone that is bought, that is not locked to any network. And as such it can work on any network. The network it will lock unto will depend on the SIM card you put into the phone. For example if you put a AT&T sim in an unlocked phone then it will work on the AT&T network. In the same way if you put a NEXTEL SIM card in an unlocked phone then it will work on the NEXTEL network.
However if the phone is locked to a particular network, like say for example AT&T then changing the SIM card in the phone to another SIM card from another network such as NEXTEL will not work. This is because the phone is locked unto to AT&T network and as such will not work on any other network. Yes, you can use the prepaid SIM card on the phone once the phone is either unlocked or on the same network as the SIM card you are going to put into it. It should work just fine.
Victor Epand is an expert agent for BuyCellularPhones.info, a huge cellphone superstore featuring great prices and rebates on cellphones including Motorola, Samsung, Nokia, Audiovox, LG, RIM Blackberry, Sanyo, Sony Ericsson, and others.