Free online games

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It seems like every time I log on, I see an ad featuring a skimpily clad female figure advertising a "free online game." Upon inspection, the games all seem to be of the same mold: traditional grind-for-xp games with some cash-based extras. Does anyone know what the deal is? Is this a thriving little industry, or is someone selling "free MMORPG" setups AmWay style, or what?
 

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The only one I ever participated in was Kingdom of Loathing, and I haven't done that since 2005.

I suspect they're just selling ad space, with the idea that the longer you see an ad, the better it works...and what better way to keep an ad in someone's line of sight than a reasonably enjoyable game?
 

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