Here is a good write-up that explains the differences between different kinds of "unlocking" for Android phones/tablets.

The following is a brief summary of what I understood from that write-up and my experience with the HTC Wildfire over the past week.

root: This is simply having a root shell on a running phone (which is after all running some version of Linux and shell). This means one can make whatever modifications one wants to the portions of the system that are not hardware locked or otherwise inaccessible to the running kernel. (One can run shell commands on the phone using a program called "adb" distributed by Android/Google.)

recovery: this is a separate system-partition which has limited functionality. Mainly meant for "recovery" in case of corrupted or un-installed "system" partition.

unlocked bootloader: This means that you are permitted to flash the "system" partition, "kernel" partition and the "recovery" partition of the phone through the bootloader (using a program called "fastboot" distributed by Android/Phone). Some checks are made on images before they are "flash"ed.

S-ON: The "radio" partition and the bootloader itself cannot be over-written. Before booting normally or into recovery, the "kernel" partition is locked and possibly the "recovery" partition as well.

S-OFF; all security restrictions in the bootloader are off. No checks are made on any images being flashed.

So, with an "unlocked" bootloader (even with S-ON) one can make whatever modifications one wants to the O/S. First using the bootloader to flash a custom recovery and/or kernel and then using that recovery to change the "system" partition as and when required.

However, one cannot change the configration of the radio (which handles GSM and GPS) or the bootloader. Since the latter should have nothing to do with a running phone and the former is really something that is like "firmware" for a wireless/ethernet card, most people would not need to mess with either. (Note that this is not true in places where the Phone/Tablet is obtained from some phone network company as they may have put some sort of restricted "radio" which cannot connect to a different network.)