Before we dive into this, let me say one thing: although it may be counter-intuitive, a state court in, say, Georgia can apply Alabama's, Florida's, or any other state's law to a claim. This is a fairly common stumbling block for people trying to get a handle on personal jurisdiction--just trust me when I tell you that State 1 can hear a case between two parties who live in State 2 (or between two parties who live in State 1) and apply State 2's law to the claim.
One other thing: we're only worried about state courts here, because federal courts have a lower hurdle to clear with respect to personal jurisdiction.
Okay, so, the court you're trying to appear in front of has the right to hear the type of claim that you're presenting. (In other words, it has proper "subject-matter jurisdiction" over the claim.) Congratulations! However, proper SMJ is necessary but not sufficient. The court must also have personal jurisdiction (also known as "territorial jurisdiction") over the parties.
Personal jurisdiction deals with the right of a court to adjudicate the rights of a person (or thing, if the dispute is, say, over a piece of property but let's not worry about that). This is a common-sense concept: a state court in Maine shouldn't have any power to enforce a judgment over an Oregonian in a dispute between two Oregonians that concerns a car crash that occurred in Portland (unless we're talking about Portland, ME...). Yet, if the only hurdle to proper jurisdiction were subject-matter jurisdiction, the Maine court would have this authority (because the Maine state court can hear this type of case). That's why we need another protection, and that comes in the form of personal jurisdiction.
Now, our Maine court (or any other, obviously--we'll stick with Maine as the example) must have proper personal jurisdiction over both the plaintiff and the defendant, but since personal jurisdiction is waivable, the plaintiff is deemed to have waived any potential objection to the court's exercise of personal jurisdiction over him when he files the suit in the Maine court.
The far more important question is this: when does the Maine court have personal jurisdiction over the defendant?
(1) The defendant can waive his objection to personal jurisdiction, typically by making a "general appearance" in court. If the defendant makes a general appearance, there goes his right to dispute the personal jurisdiction issue. So, a savvy defendant will make a "special appearance" in court, which basically tells the court, "look, I don't think you have any rights over me (ie, 'I don't think you have any personal jurisdiction over me') but in order to persuade you of this, I have to be here to explain my side. So, look, I'm only here for purposes of disputing your potential personal jurisdiction over me. I'm not waiving the defense."
You waive your objection to personal jurisdiction when you don't mind litigating in Maine (maybe you got a great deal at a bed-and-breakfast in Falmouth). Unfortunately, winning on the personal jurisdiction issue doesn't let you totally off the hook--the plaintiff will just re-file, this time in Oregon. That's why defendants will sometimes waive their objections.
(2) If the defendant gets served with a summons in the state in which the lawsuit was brought (here, Maine), the ME court has personal jurisdiction. That's kind've a harsh rule but it's been around for a while and it looks like it's here to stay for the foreseeable future.
3. The last way for a court to have proper personal jurisdiction is the most confusing. Long story short: the defendant must have minimum contacts with the forum state (here, Maine), the exercise of personal jurisdiction over the defendant must be reasonable, and the Maine statute must authorize the exercise of personal jurisdiction (this is rarely a problem because many states give their courts as much reach as possible).
No one really knows exactly what "minimum contacts" means, but if the defendant has purposefully contacts with the state of Maine, Maine probably has personal jurisdiction. So, clearly the Maine court has no personal jurisdiction over the Oregonian defendant in our car crash example, but if the defendant were, say, a corporation from Oregon who advertises and sells its products in Maine and purposefully avails itself of the benefits of being present in Maine, then that Maine court will have personal jurisdiction.
I know I just said a lot...maybe this analogy will help:
Let's say that you just moved out of the house and found a full-time job, and to celebrate you got your first tattoo (to your mom's noticeable chagrin). When you return home for Thanksgiving, she scolds you for getting the tattoo and threatens to ground you. Here, your mom has no personal jurisdiction over you. She can't enforce a punishment against you because you no longer live under her roof or take money from her. You have "insufficient contacts" with her. Now, if your younger sister (who's still in undergrad) had gotten that same tattoo, your mom would be able to enforce a punishment over her by taking away her tuition money or kicking her out of the house or whatever.
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