Some trannies lockup electronically, some mechanical. The AOD is mechanical.
The stock converter locks up in 3rd and 4th gear. What this means is that the torque converter is no longer multiplying the torque, it is a direct connection between the engine and transmission -- not slipping at all (locked up). This reduces heat and keeps RPMs down.
A non-lockup converter never locks up. Even in 3rd and 4th gear it is slipping, but it is multiplying torque as well. This means more torque goes to the tires, but at the expense of more heat and higher RPMs.
There is a lot more that goes into deciding which is for you, but that is the difference between the two.