Thanks to freemium pricing--giving products away for free--authors can gain visibility (and bragging rights) when their books, priced at $0, rise to the top of the Kindle best-seller list. This also helps raise the perceived utility of expensive e-book readers, which are popular among early adopters but have yet to move into the mainstream.
Giving away a product to increase its perceived value seems counterintuitive. However, the freemium movement--at work in the apps world, in music, and in other industries--suggests that this strategy is effective in a surprising number of situations.
Not everyone is a freemium fan, as "Why freemium is bad for business" explains. I agree with many of the points in that article . . . especially the part about there being no such thing as a free lunch.
Still, the point of freemium pricing is to demonstrate the product's value and encourage users to upgrade to a better version that carries a real price tag. And the Kindle freemium book strategy appears to be doing just that.