Let me clarify, I only mean the legal, licensed type: downloaded, or hosted on a website.
Examples of those I use: Google Apps - for my office mail, Google Analytics - online analytics of my website, Deskaway - Online Project management, Mikogo – FREE Online meeting app, PollDaddy - on which the poll below was created or TwtPoll. And, a bit of self promotion here: we do eat out own lunch; we use our own product Salesgenie CRM++ , a hosted Customer Relations Marketing product: also available for FREE for up to 2 full-functional users.
Why are these free? They follow, what is called a FREEMIUM model of pricing for their products and service. They address various customer needs of try before buy or not needing to use the full-feature set of a software.