Ever wonder what exactly that tiny SIM card in the side of your AT&T/GSM iPhone or iPad 3G is and what it does? The short answer is, it's a Subscriber Identity Module, and it is a small circuit board which is placed in your iPhone (or any GSM phone) in order to identify it to your carrier. It's why you can swap SIMs in GSM phones and your phone number, voice, and data plans are swapped right along with it. Unfortunately, it's also why you can't just take a SIM-locked AT&T iPhone and run in on another carrier. For the long answer, stay with us after the break!
A SIM card is internationally identified by its Integrated circuit card identifier (ICC-ID) which is engraved on the body of the card. They are also identified by the carrier from its International mobile subscriber identity (IMSI). Beyond identification, SIM cards (mini SIM in iPhone 2G, iPhone 3G, and iPhone 3GS and micro SIM in iPhone 4 and iPads), have several other functions.
SIM cards have evolved a lot over the years. All three are 0.76 mm in thickness and run at a speed of 5MHz. The old, original SIM cards were credit card sized. The next and still most common size is the mini SIM, which is 25 mm in length with a width of 15 mm with a cut on the corner so that it is easy to place in the slot properly. Apple began using micro SIM with iPads and iPhone 4. This is the newest standardized SIM size, and is 15 mm × 12 mm. Many carriers provide a mini SIM with the smaller micro SIM punched out inside so that it can be broken off and placed into the phone if needed.
There are also 3rd party, after market SIM cutters to turn a mini SIM into a micro SIM and jackets so a micro SIM can be used in a mini SIM slot.
The SIM card is provided with your iPhone (or 3G iPad) by your carrier and it is used to store data about your account. It holds information such as your phone number, security data, billing information and things which help the carrier to know who is the user of the phone. (On older devices, especially feature phones, it also stored things like text messages and contacts). The SIM card allows you to change cellular phones and keep the same user data.
The SIM card is what lets your carrier know that you're the account holder of the iPhone using it. So if you take your SIM card our of your iPhone and then put it into your friend's iPhone and receive calls as though it were your own (assuming the SIM card is compatible).
Bonus Tip: So yes, if your iPhone runs out of power and you desperately need to use your voice or data plan, you can just swap the SIM into another iPhone or phone and use it with your minutes and data bucket. Or, if they're running low on minutes or data, they can borrow your SIM card and use it with the apps on their iPhone until you need it back.
The main benefit of a SIM is that you can easily swap phones on your own. If you buy a new phone you can simply insert your existing SIM and keep on using your existing service (carrier restrictions may or may not apply, but the technology works that way.) Likewise if you travel internationally you can just buy a SIM on a local carrier and use that as a way to avoid expensive roaming fees (again, carrier restrictions and lockouts may apply).
Theoretically there are few drawbacks to SIMs. Practically, however, many carriers lock their iPhones so they only work with that carrier's SIMs. That means, if you put in a SIM from another network you'll get an error instead of the service you'd expect. Typically the SIM-lock is in exchange for a subsidized phone (so you can't buy a cheap phone on one carrier then switch over an use another before you've paid back the subsidy over the life of your contract).
However, with iPhone many carriers like AT&T won't unlock it even if you pay full price, even when your contract expires, or even if you work internationally and need it unlocked for travel.
The only way around the restriction is to Jailbreak and then unlock your iPhone. (See our Jailbreak Starters Guide for more.)
Apple does sell officially SIM-unlocked iPhones in many countries, however they cost full price (over $600 for 16GB and over $700 for 32GB). Some carriers will also officially unlock phones after certain periods or at a certain cost. They communicate your iPhone ID to Apple which then registers it as an officially unlocked iPhone and will activate with any SIM on iTunes.