In order for any program to be installed on the iPhone, the program must be cryptographically signed. When a user attempts to install software on her iPhone, the iPhone's Digital Restrictions Management (DRM) system checks to see if Apple considers the signature on the software to be valid.
If there is no signature or if the signature is invalid, the iPhone will refuse to install the software. If the software has been modified in any way, the signature check will fail. The signature check is also tied to the user's specific device, which means that she is not permitted to transfer or copy downloaded programs directly between iPhones, and any other copying is permitted or not permitted at Apple's whim. This system of rejecting software that doesn't pass a signature check -- even when modifications to the software are legally permitted -- was made famous by TiVo, and so is called "tivoization".