Free movies is actually a creative marketing ploy, because there are actually fees involved. They can say that though because if you are a member of their site than you get access to all of their "free" movies. Basically what it boils down to is a site that operates very much like a cable company and charges a monthly fee to come be able to come to their site and download movies. They do get to keep them which is the super cool thing about these sites and makes them totally worth the cost.
So how do they make any money? Well they are on the internet so their market has huge potential. They are not limited by geography like a movie rental store would be or a cable company for that matter. So volume is a huge thing they bank on. So won't people just get on the site for one month or so and download all of the movies that they want and then get out? Wouldn't they lose money on people like this? Well the answer is yes and no. You see for one thing there is such a huge volume of films is would be hard to download all of the movies that you want in one month. Besides people don't want their hard drives full of free movies. The other major thing is that good movies aren't just going to all of a sudden stop coming out. People are going to want to stay members so that they can get the new releases that come out periodically.
Maybe now you are seeing the benefits that cause people to become members and then "give" them all the free movies that they could ever want. Maybe now you will go and check out one of these great sites. They are easy to find, trust me. All that you have to do is search for free movies and you will get more sites than you new existed for this new way to sell movies.
