It allows you to more quickly upgrade your phone. You are buying the phone. I don't know how it works for the specific carriers because I know Verizon and AT&T are doing it as well.
How Verizon works is that you pay the full off-contract price for the phone in order to be able to upgrade, but you receive the new phone once you've paid 50% of the retail price which is often 600-800$ for a new phone.
If you have an unlimited plan it will carry over. There are several benefits to buying a phone off-contract aka @ full price. Look into it.