I'll add something to that. I'm pretty new to the Dodge/Cummins world, but not to cars in general.
This is a fairly poor analogy, but a tourque coverter is like two box fans stuck together. One side is moving fluid/air, and the other side is being spun by the fluid/air. Since there is no direct mechanical link, the fan that's being driven spins slower than the one that's doing the driving. That means there is some wasted energy.
Like Derek said, your TQ acts like an automatic clutch. At lower speeds, it is unlocked, or slipping. Much like the box fans, the TQ will slip since it has a 'soft' fluid link as opposed to a 'hard' mechanical link. This slipping allows your engine to idle while stopped, and also allows your transmission to shift without damaging things. At higher speeds, your TQ will engage clutches and create a solid ('hard') link between itself and the transmission. The engine/transmission are now directly linked together. At this point, the TQ is no longer slipping. This is what is referred to as lockup.
Now that it is locked, there are times when it needs to unlock. One of those is slowing down. If the TQ stayed locked, the engine would quit once the vehicle slowed too much or stopped. It also can't be locked for shifting. If it did, the rapid change in gear ratios would destroy transmission parts.
There is a downside. Slipping solves some problems, but creates others. For example, a slipping (unlocked) TQ isn't delivering all of the engine's available HP to the transmission. This slipping also creates excess heat. That's why guys with transmission temp guages notice less transmission temp once the TQ locks up. It's also why guys who tow heavy loads with an automatic have to be pretty careful about pulling with an unlocked TQ. The transmission can get hot in a hurry. So, in an effort to cure these problems, TQ's lockup at certain points as opposed to slipping the whole time.
Anyway, hope this helps!