Its not the SIM they unblock, its your phone. Some phones are tied to certain networks, say for instance u bought a nokia 8310 on O2, it may only allow O2 simcards in the phone (PAYG or contract - it doesnt matter), but unlocking it allows u to put any simcard from any network into it:

Vodafone
T Mobile
O2
Orange
Virgin
Fresh
Genie (now O2 combined)

The SIM cards do get blocked if u type ur pin in wrong 3 times and then u need your PUK (personal unblocking code) to access it and that is availble from your service provider.

Entering a PUK code in wrong 10 times permantly bars the SIM and renders it useless !!