People are generally concerned with IPSW files for either exploration into the workings of iOS and the iPhone, or for jailbreaking and unlocking purposes. Jailbreaking IPSW files are most pertinent to Pwnage since you can use a custom IPSW file if you wanted to. Anytime you update your device iTunes will grab a new IPSW from Apple’s servers. You can download PwnageTool if you need it. There are mixed reports of Apple caring and not being concerned that phones are jailbroken, but your mileage may vary and it’s best to play it safe.
The IPSW acronym is thought to stand for iPhone Software. IPSW files are essentially just packages to deliver updates to your iPhone, iPad, and iPod touch including the baseband and firmware. Wondering where you can get all the older iPhone firmware files from? Redsn0w works as well but may require a tethered jailbreak for some iOS versions. For this reason if you ever need iPhone warranty service, be sure to unjailbreak your iPhone before taking it into Apple. You can find out how to use IPSW files if you are uncertain. Recent rulings have ensured that jailbreaking your iPhone is not illegal, although Apple maintains that it will void your warranty.
Local IPSW File Locations Any iPhone IPSW files that you have already downloaded from iTunes are stored locally on your machine. The newest available versions of iPhone IPSW can be downloaded here, or follow continuously updated IPSW posts here including that which is available for other iDevices.