It can be any image in your photo app, ones you have taken or added from your desktop. Also, it doesn’t have to be the full image, you can zoom in and use just a part of the picture.
I have a picture of my pup I took with my iPhone that included her on a big towel. What you see when you turn on my iPhone is just her Bichon smiling face.
You can not change the black background to the windows that have you application icons… I’m sure that feature is coming. For now it is just the screen that shows with the Time, Date and ‘Slide to Unlock’ when you first tap the Home button to wake your iPhone.