What CyanogenMod isn't
CyanogenMod, however, does not "unlock" the device. Most carriers "lock" their handsets to prevent customers from buying a handset and moving to a different carrier. Carriers depend on these "exclusivity" agreements to bolster revenue. For example: if you buy an iPhone in the US, you are stuck with AT&T or Verizon, whichever you bought from. To use the handset on another carrier's network it would be necessary to "unlock" the handset. This is done with a code based on the IMEI of the handset that can be provided by your carrier or firms on the internet that are slightly more reliable than a Nigerian Prince.
Unlocking cannot be done by installing CyanogenMod, or any other firmware for that matter.
It should be noted that there is a small risk of running custom firmware, as noted by Cyanogen himself:
"While this build is heavily optimized, it is also capable of pushing your G1 much harder. I am not responsible for bricked devices, dead SD cards, thermonuclear war, or the current economic crisis. Please do some research if you have any concerns about features included in this ROM before flashing it! You are choosing to make these modifications, and if you point the finger at me for messing up the device, I will laugh at you."
Shortly after the release of the HTC Dream in September 2008, a process was discovered in which a user could gain "admin" or "root" access to the device's software. This 'hack', along with the Android Open Source Project's stance that anyone should be able to alter the base software as they see fit, allowed Cyanogen to create custom software for the HTC Dream.
The CyanogenMod firmware is currently based on code released by the Android Open Source Project's "Gingerbread" (Android 2.3) development branch. CyanogenMod is primarily developed by Cyanogen but includes contributions from the xda-developers community and other sources.
Until version 126.96.36.199, CyanogenMod included several proprietary apps such as Gmail, Maps & the Android Market, which are included with stock versions of Android, but are not licensed for distribution with 'custom' firmwares, such as CyanogenMod. Legally, Cyanogen was not allowed to include these apps in CyanogenMod.
The reactions of many CyanogenMod users was predictably hostile, with some claiming that Google's legal threats hurt their own interests and violated their informal corporate motto to "Do No Evil". After extensive media coverage (Cyanogen negotiated an agreement in which Cyanogen could continue development on his firmware as long as he did not include Google's proprietary "Google Experience" components.) and a statement from Google clarifying its position Google and
To work around the licensing issues, it was further agreed that the proprietary Google apps may be backed-up from the stock firmware on the device and then re-installed onto CyanogenMod releases without infringing copyrights.
Cyanogen has warned that while issues no longer remain with Google, there are still potential licensing issues regarding proprietary, closed-source device drivers. However, he believes the licensing issues with the drivers can be worked out, and he is receiving assistance from Google employees to avoid any further licensing issues.
Source: CyanogenMod Wiki