Yeah people have hit the nail on the head
1- Red Hat can't sell their OS, they can only sell the physical disks/ shipping costs they incur and any support they choose to offer. This was something they agreed to when they joined the GNU/Linux community.
2- Red Hat really makes their money being a fall guy. You know what they say s*it rolls down hill. Companies buy Red Hat support, so when things go wrong their is someone "official" to blame. Its a cost-of-business / risk management decision.
E.g. if you are a business, you wouldn't want to buy your inventory off the street (or e-bay) - you should use a reputable dealer. Red Hat, like it or not, is the reputable dealer for Linux.
Without their direct support and assitance their product has no value. I actually paid $400+ for RHEL 3, but for just a single year of patchy service, for a single server in a small (miniscule) operation, its not worth it for me to renew. I can manage with other free Linux distributions just fine.
If I get established as a large corp. and I have to have an entire IT department, the $400 would be very cheap when compared to the trouble of making the IT department de-bug free distributions. That is the only linux market Red Hat can ever hope to "exploit".
Anyway - the final real thing is, Red Hat is required to make their software available for free, because they are using other things under the GNU license which requires them to do so, if they use it (e.g. the Linux Kernel, KDE, Gnome, etc etc). You should read what red hat themselves say on the subject:http://www.redhat.com/about/whyopensource/