With all the IPSW firmware versions, various Apple devices and a variety of tools for jailbreaking the whole process becomes very confusing. While working with custom firmwares and jailbreaking one must follow the correct sequence of steps with right tools and software versions, otherwise iTunes throws an error and the device gets locked down in a restore or DFU loop.
One such often encountered error while restoring an custom IPSW file using iTunes is - "An unknown error occurred (Error 1600)." as shown below.