A jailbroken iPod Touch or iPad is basically that which allows a third-party software called Cydia [not approved by Apple, basically because they're jealous!] to be installed onto your Touch. You can do loads of cool shit with this, like getting free apps, and turning your iPhone into a wifi hotspot, which basically means using your 3G as a wifi and giving it to those around u... like an all-time wifi!
There are various jailbreak techniques available. Here's one. http://www.redmondpie.com/jailbreak-ios-4.2.1-iphone-4-3gs-3g-ipad-ipod-touch-with-redsn0w-0.9.6b4-guide/
This one is for those running the iOS 4.2.1 [can be checked by going into Settings>>General>>About].
My iTouch is jailbroken, and I love it. It become a little slow, but that's ok. I can bear with that!
And no doubt Apple kills your warranty, but you can always restore your iPod, and get it back!
So basically, no risk!