Whether people are familiar with the term/concept or not, most prepaid phones are unsubsidized. They're not unlocked, but you can walk into a store, pick a phone off the shelf without a sales agent helping you, and pay anonymously with cash. You can then choose to activate the phone, or let it sit in the box for eternity with no further payment or penalty incurred.

This is my main argument against the statement that nobody in the US buys a phone without some sort of service agreement.

I have employees (factory workers) here that could never afford a free iPhone. But they can afford a $35 flip phone on Boost Mobile 10¢/minute pay as you go plan. Someone I know recently bought some prepaid Verizon dumbphone for $10 at Best Buy. It's being used on a $1/day plan where you only pay $1 on the days you use it.

Not everyone is fortunate enough to have credit or the ability/desire to pay for a 2-year cellphone contract. There are more people out there with unsubsidized phones than Engadget or Mac Rumors would have you believe. It's only recently that you've been able to get data and a reasonable smartphone on these no-contract carriers.