There are a few games that I know of with free software licenses (one with the GPL) that sell their software no problem. As others have mentioned, free software (and open source software as well) do not disallow redistribution. So if you have obtained a license for the software (by buying it for instance), nothing is stopping you from giving it away for free (or selling it yourself). In a large market, this will cause the price to tend towards zero.

In practice, though, at least for the games I know about, even though they are free software, people prefer to buy them for various reasons. A few of the games are on Steam, and some people just like to buy games on Steam. They don't mind forking over a small fee for the convenience of having everything in one packaging system. Some games have official servers that you can't use without paying money, so most players prefer to pay the money and use the official servers (instead of having to maintain their own).

For other kinds of free software, I think most people do not have a business model in mind when they write the software. If it's part of a company initiative, having other developers trained in your code base before they join the company is well worth the effort of freeing up the software. Zero price reduces the barrier to entry.

There are a few companies that have tried to make a pure Free software play. Werner Koch has funded himself and occasionally a small team for GPG development with various contracts. I think he's well funded now from donations. Probably the most famous and successful pure Free software play was Cygnus software which did the development for GCC an the Autoconf tools for a decade or so. They grew their business from $3K to selling out to Red Hat for $600 million. They just had a good business plan and a product in the perfect space (making GCC run on embedded systems for large corporations). Another example is Code Weavers which is technically open core, but I think pretty much everything they do ends up in Wine eventually. Again, customer development for large organisations in order to allow Windows apps to run on Posix systems.

Quite a few free software systems work in a kind of consortium model. That would include organisations like Apache -- a group of big companies get together and agree to fund the development of certain projects because it makes sense for them to share development costs. Another very good example of that is Blender and I think their business model has been extremely effective -- get funding for small projects that make them relevant to the movie industry and then reap the benefits from the consortium model.

There are quite a few more, but you get the idea. The main thing about Free and Open Source software is that it's hard to have a pure play if your product is software. If you are selling services, or doing custom development, or are aiming to make yourself indispensable to a certain industry so that they fund you... you can do it. If you want to charge for your software (like the games I mentioned above), then you pretty much have to hope that there is a reason why your customers will choose to pay you rather than trying to find the software somewhere else. That might be difficult (but like I said, I've been surprised that some people are actually able to make a living at it).