Like many other English words, the word "free" has several overlapping meanings, and two of those meanings turn out to be problematic when discussing software. In particular, "this software is free" could mean:
- free as in free beer: "this software costs no money to use"; or
- free as in free speech: "this software has few or no restrictions on how it may be used"
To remove the ambiguity, some people write "gratis software" to mean the first kind (costs no money), and "free software" to mean the second kind (has few or no restrictions).
Neither gratis nor free software: Most commercial software falls into this category. If you want Microsoft Office, you must both pay money for it, and agree to a lot of restrictions on how you can use the software. For example, you are not allowed to edit the internal workings of Microsoft Office to make it behave differently, fix a bug, et cetera.
Gratis, but not free software: Adobe Reader is available without charge, but if you want to use it you must agree to a number of restrictions on how you use it. For example, you are allowed to run the software. But you are not allowed to package it up and sell it as something else to another person.
Free and gratis software: The Blender Game Engine is the building block of many games. You can use Blender at no charge, and you are only minimally restricted in how you use Blender or what you do with it.
Gratis is not otherwise an everyday word in English, outside of specialized distinctions like this one.