As in beer, so, the product. Having source code is great, but when I'm trying to get something done I don't really care about e.g. the EFF's moral stance.
Free until you take more than 3000 sips from the glass per quarter. So still likely 100% free for all but the successful indie devs and larger studios.
It doesn't matter what the word means outside this sphere. Otherwise, "engine" usually refers to something like a car engine.