It drives up subscriptions to Unreal Engine 4, so that's probably the primary monetization strategy. They won't make any money from players until the content marketplace opens, but this could do a lot to drive people to use and learn UE4.
It's a potentially smart business move, will be interesting to see how it works out for them.
Well, they say development will be "in the open" and that "[w]hen the game is playable, it will be free. Not free to play, just free." So they use the words "free" and "open," but they don't say anything like "free software" or "open source." Even someone like Stallman acknowledges that this is a legitimate use of the word free (although the terms "gratis" or "free as in beer" are less potentially ambiguous).
It's a potentially smart business move, will be interesting to see how it works out for them.