Jailbreak: To "break" through the iPhone's security and gain access to install third-party software or unlock it.
Unlock: To bypass the iPhone's SIM lock, allowing you to place any SIM card in the phone and use that service. (By default, it only works with a SIM from the official carrier for the iPhone in your country)
Firmware: Instructions for the iPhone hardware.
Software: The operating system and applications that run on the iPhone.
In most cases, an update to the iPhone software/firmware will cause the phone to stop working if it is unlocked. This is called "bricking"
Before you can install new stuff on the phone, it needs to be jailbroken. For 1.1.4, that would be done with ZiPhone.
Beyond that, I can't offer any more advice, as I have not taken the plunge into the world of jailbreaking yet, myself, but there is a lot of information available on this very forum - just use the search box. Or start at this thread, which answers a lot of frequently asked questions:
http://www.everythingicafe.com/forum...ead-24657.html
Another explanation is available here in case you didn't get mine:
http://answers.yahoo.com/question/in...4053538AAzbVYe