Domain locking is a response to a recent ICANN policy change that makes domain theft much easier than it has been in the past.
Currently if your domain is not locked, the following steps are used to tranfer a domains:
1. A domain transfer is requested by another registrar. This request can be initiated by anyone, whether or not they own your domain.
2. An email is sent to the administrative contact for your domain, requesting approval for the transfer.
3. If no response is received within five days, the domain automatically transfers to the new registrar.
Therefore, you can see that if you do not receive the email, or if you are out of town, etc, it would be very easy for your domain to be transferred away without your knowledge or intervention.
Domain locking prevents this kind of theft. A domain lock is placed on your domain to ensure that you authorize any domain transfer. When a domain transfer is requested (step 1, above) the new registrar checks to see if the domain is locked. If it is, the email from step 2 is never sent, and the domain transfer stops.
When you are ready to transfer a domain, you simply contact the registrar of your domain, and request that the lock be removed. At that time, you are able to transfer your domain normally.