Open Source Software and the General Public License
All versions of Linux are licensed under GNU's General Public License, or, GPL. In short, the GPL states that any software licensed by the GPL is "free". Free, however, does not inherently mean free of cost. It is referring to freedom. An excerpt from the GPL reads:
"Our General Public Licenses are designed to make sure that you have the freedom to distribute copies of free software (and charge for them if you wish), that you receive source code or can get it if you want it, that you can change the software or use pieces of it in new free programs, and that you know you can do these things."
For the record, the contents of the GPL itself are also free to be quoted, printed, and distributed, so long as they are without modification.
As stated, an individual or company may charge money for software that is licensed under the GPL. What the person pays for, though, usually isn't the software itself, but rather a guarantee, warranty, or special feature only offered by that company. If another individual obtains that company's software (whether they paid for it or not), they have "free" access to its source code and the freedom to modify or reproduce it as they wish.
The one major thing that is strictly prohibited by the GPL is taking "free" software and making it closed source. This means that if you create a program and any part of that program contains code that his been licensed under the GPL, then you must also license the rest of it under the GPL, keeping its source open.
For the full text of GNU's General Public License, visit: http://www.gnu.org/copyleft/gpl.html