The concept of Open Source Software (OSS) is very difficult for some people to grasp, especially the rest of the proprietary closed-source software industry. However some companies, like Red Hat, have found ways to be very profitable in the OSS arena.
Wikipedia has a rather dry explanation of Open Source Software and many links and you should check it out, but that article really does not get to the root of what OSS is all about.
Open Source Software can mean that the software is free as in beer but some OSS is not free and you have to pay for it. OSS is also free as in unencumbered meaning that you can use it and change it and redistribute it to all of your friends and, so long as you follow the very mild terms of the Gnu General Public License, the software police will never bother you.
But to me, Open Source Software is about community more than anything. I am a member of that community and have written a little program called Fedora Frog which users of Fedora Linux can use to make easier the installation of some other programs and utilities. I provide this program for free to any who wish to use it.
Open Source is about writing great software and making it available to everyone. It is about many people from around the world contributing time and talent to a software project because they enjoy doing it. Some Open Source developers do get paid to do what they do but even they enjoy working on the code.
Linux with its many distributions is probably the best known example of Open Source Software but there are many others.
Many Open Source projects have free versions that allow individual, non-profit and limited commercial use licensing, while providing an enterprise version with full 24/7 service and support for a fee. This is for companies that just cannot stand to not pay a lot of money for something. It is also for “executives” who think they need someone else to blame when things go wrong.