Sometimes freeware is something the author created for himself, and it has a low commercial value (as in, the time/effort of marketing it is not worth what you'd get), so he decides to give it away. Or it's something trivial, or it's under a GNU license, or it's software to strip the DRM from iTunes products, or he just wants to give it away because he's a nice guy.

Or it could be packed with spyware, like kazaa was, but then you usually get a friendly person who will yank that spyware out of the exe for you, creaing kazaalite.

So there are lots of reasons.