"If it's all free, how does anybody make any money with it?"
This is probably the number one question we get about the components of social media marketing (principally: Twitter, Facebook, LinkedIn, e-newsletters, blogs).
There are two main models:
1. click-and-buy advertising. Post your ad on Facebook for a small fee (going to Facebook), and sell your product or service to whomever clicks through.
2. micro payments for virtual goods.
Invest three minutes in watching this slideshow that demonstrates how Zynga, for example, made $250 million this year on "free" Facebook games. It's a marvel of multilevel marketing (as well as making emotional appeals not to let your virtual pets starve and die).