Basically if you want to restore to firmware that is not the most current on an iphone 3g, 3gs, or 4 you can't without this shsh blob. You also can not downgrade your firmware without it.
SHSH Blobs: Those are a series of files with Extension .shsh (yield the name), these are signature files which are verified against Apple Server. Apple only sign those files with the most current firmware release and them make iTunes check for it, so that way they force your to install the most current firmware (by design they didn't count on users saving these files locally)
Blobs: Binary Large Object, is a collection of binary data stored as a single entity in a database management system. Blobs are typically images, audio or other multimedia objects, though sometimes binary executable code is stored as a blob. Database support for blobs is not universal (Thanks to - aggie - )