A soul gem is a gem created to house a subject's soul for varying purposes. When one's soul is placed in a gem it can be fully or partially placed in the gem.
If the soul is fully placed in the gem the subject becomes a slave to the holder of the gem. The subject remains a fully functional thinking being, but that free will can be overridden an the holder's will. If the subject is able to recover the gem, the subject will regain free will for as long and the soul remains in the subjects possession. If the gem is destroyed, the subject will die and the soul released to the afterlife. However, if the subject is destroyed and the gem remains intact, the subject's soul remains trapped and can be bound to host being.
If the soul is partially placed in the gem, the subject retains all free will. However, this requires the subject to risk fracturing the soul. It is unknown what exactly happens in this event though it is theorized that the subject will either become unstable or out right kill himself in the process. If the gem is destroyed, the subject remains unaffected. However, if the subject is destroyed and the gem remains intact, the subject's soul can be restored to a new host. Effectively, the subject can only die if both the body and gem are destroyed.