The above pic shows some of the programs I've used in jailbreaking my iphone, like blackra1n and cydia. The terminal in the pic is used to change your default root password
I don't know why it's taken me so long to jailbreak my iphone being as curious as I am. I think it was the scare of bricking my only phone aka lifeline :) , that has kept me from doing it. The thought of playing mario and older NES games on my iphone is what one me over. Plus I read up on some things to do at the command line that I found really intriguing.
If you are considering jailbreaking your iphone, think about why you want to do it first and if it's possible to do without jailbreaking. It's awesome to have an open and "FREE!" iphone, but it's now also open to more security threats. Not to mention that you may end up turning your iphone into a fancy paperweight.
If I haven't scared you yet, and you still want to jailbreak your iphone, I'll point you to some of the sources that I used when Jailbreaking my iphone. Now mind you my iphone is version 3.1.2. If you are an older version of iphone you may want to update it before applying the hack. There have been reports of problems where iphones that were jailbroken, not working after the update.
I used a program called Blackrain to jailbreak the iphone. It's very simple to do and was in fact done from a computer that wasn't my main one. Firstly have your iphone connected to your computer with it's cord. Then download and run the blackrain program. A simple box with one button will open up...click the button. Voila your phone is cracked :) yes that simple.
Now your phone is going to reboot, and you will notice that the blackra1n pic shows while your iphone loads.. don't panic and yell hax! it's ok. When your iphone is finally booted all the way up and you are logged in; you will find an application titled blackra1n. Go ahead and run that app. It will give you 3 options, select hacker. You will need the command line to change your root password later. When it came to packages, I downloaded the cydia package. You also have the option here to unlock your iphone so you can use it on different carriers other than ATT
Your basically done and free to do whatever you want with your phone. I recommend you poke around the packages and find things to install and play with. I also have links at the bottom of this post that you should look through. They talk about securing your iphone now that you've made it a little more vulnerable.
blackra1n website
securing your iphone article
changing your root password here
happy cracking
if you need any help, feel free to ask in the comments.