As far as I know they block the IMEI or whatever it's called of the phone, it's unique serial number like a car vin number, then it can't be used on any networks so it's effectively useless, not sure why people bother stealing phones, or maybe they do it in the hopes that some dumb :c**t: will buy it and not check the IMEI database to make sure it's not blocked.
the database has some info on it:
http://www.tcf.org.nz/content/cfa46b54-509c-44aa-91da-3bfe14d20f8f.htmlbut there may be the possibility that the IMEI can be changed