factory unlock usually refers to when the phone comes unlocked from the factory (i think).
To hardware unlock your iPhone,
you have to purchase the code from a retailer online.
They take your info, iphone model, iMEI and I think thats it.
Then they provide you with a code and instructions where to enter it to unlock the phone.
When I unlocked my iPhone 4 and HTC, that was process, so it should be along those lines.
If you want though, do the software unlock (via Cydia) for free.