It's "free" in two senses of the word.
It's free in that it requires no money from the end-user to download and play, and the developers don't make any money off of the game (aside from whatever donations they may get).
It is also free as in "freedom". Liberty.
Free software is a term coined by Richard Stallman and the Free Software Foundation[1] to refer to software that can be used, studied, and modified without restriction, and which can be copied and redistributed in modified or unmodified form either without restriction, or with certain restrictions to ensure that end users have the same freedoms as the original authors.
To make software available as free software, the software has to be accompanied by a software licence saying that the copyright holder allows these acts (a free software licence), or be in the public domain, and the human readable form of the program (the source code) must be made available.
Yes, someone may be making money off of providing servers for the game to run on, and yes, the developers might be getting a few donations here and there, but the bottom line is that no one is directly making money off of Tremulous. It's also free. Open-source. It got it's start with the main developers, but it has been worked on by other people as well. Someone could take Tremulous, modify it with whatever they wanted, and then distribute it as a new binary package (and source code). It belongs to the main developers, but it also belongs to anyone else that wants to do work on it. It belongs to everyone, and no
one, you see? It's both free (monetarily) and free (philosophically).
As to why someone would do this, I imagine it started as a group of coders, modlers, texturers, mappers, and sound-effects makers that wanted to both test their skills and give something back to a community they were a part of (the Gloom community, iirc). It was never something they expected to profit from, obviously, because they couldn't make money off of it directly due to the GPL (I believe, not sure). They wanted to make a mod for Quake 3 that was Gloom-esque, they had the ability to do so, and eventually it evolved into it's own standalone game based on the Q3 engine.
Hope that kinda clears things up. Someone can correct me if I said something incorrect.