SIM stands for Subscriber Identity Module.
A SIM card is a small "smart card" for GSM/GPRS mobile phones that contains your personal account profile as well as saves important information (i.e. network information, account services, your mobile phone number, stored telephone numbers, SMS messages and more).
The SIM card must be inserted in the phone AFTER ACTIVATION, so that it will get important Network updates. These updates are required for the phone to operate properly.