Most of the suppliers are first and foremost their own customers and compensation for any development costs comes at least partly from the benefits the author realizes in using his or her own product. This is a great relief to us economist theorists because it's the first clue that there's some self-interest involved on the supply side. Without self-interest all of our lovely theories really go down the tubes. It explains how some of these products come into existence in the first place, but not why they're then given away. To solve this puzzle we have to dredge up some actual micro-economic theory and specifically look at the question of pricing and output.
Profit comes from all sales taking place before the balance point, where the two intersect.
The producer breaks even on the very last item before the balance point. When the author gives away software the marginal revenue is zero. In order for the author to avoid being declared economically insane marginal costs would also have to be zero, and thanks to the Internet this is possible. The normal mechanism for distributing freely redistributable software is to place a copy on a public FTP site. Once there, the cost of making additional copies is borne by those who download them.