Carrier Lock (SIM-Lock) is a software lock binding an iPhone to a specific mobile carrier. The device only works with that carrier's SIM card. Inserting another SIM shows the "SIM Not Supported" error.
Why carriers lock devices:
- Contract - carrier subsidizes part of the device cost in exchange for service commitment
- Installment plan - device is locked until all payments are made
- Promotions - free or discounted device with plan activation
Carrier Lock is not iCloud Lock. These are two independent locks. An iPhone can be carrier-locked but have a clean iCloud (FMI OFF). Conversely, iCloud Lock can be on a fully unlocked device.