What does it mean to buy a used iPhone?

What does it mean to buy a used iPhone or any smart phone in general? By that I mean, would I be able to use it out of the box without having to activate it or sign a contract? In other words, could I just use it as a wi-fi device?

Make sure the phone is unlocked and also make sure it will work with the phone service provider you are using or want to use. Like AT&T, Verizon etc.