Let's say I get an eBook from a publisher for free. I read this eBook and enjoy it and it turns out to be the first book in a series of say three books. That would get me to go and purchase the other 2 since I did enjoy the first book. Now if the first book had not been given to me for free, most likely I'd never have purchased the others. So while book one is a loss for the publisher and the author, overall it is a winner as I purchased two books I would not have otherwise and I might tell others about it and that may generate more sales. So overall the giving away of free books can be a good thing to the publisher.
There are people who subscribe to the webscription just because BAEN is such a nice company.