Open Box phones are phones that have been returned within the 30-day return period. They're inspected for physical- and software-related damage, and are then resold at T-mobile stores and online at T-mobile.com.
Right now, the only phones available are the Sony Ericsson TM506, and the Samsung Behold. The Sony Ericsson TM506 drops from $159.99 to just $14.99, while the Samsung Behold goes from $399.99 to $79.99. Of course, this is with a renewed two-year contract. Without the contract, the phones are $119.99 and $319.99, respectively.
The phones all come with the same return policy and warranty as brand new phones, but for a lower price.
You can search for Open Box phones by checking the "T-Mobile Certified Open Box" box on the left-hand side of the toolbar in the phones page. The phones will likely change as different phones are returned, so make sure to check back often.