Short answer to the last two questions: yes. Legal and free.
Shortish answer to the first question, courtesy of Wikipedia:
"A netlabel, also called online label, web label or MP3 label, distributes its music in digital audio formats (mainly MP3 or Ogg) online. Netlabels often work like traditional record labels to produce and promote music projects (such as albums or compilations). Most employ guerrilla marketing to promote their work. Few netlabels earn money for participants.
The primary difference between netlabels and record labels is that netlabels emphasize free downloads, as opposed to physical publishing (CD, vinyl or DVD). Often, the music is released under licenses that encourage sharing, such as the Creative Commons Licenses. Artists typically retain the copyright."
Feel better now? See, there's nothing grubby going on here. Quite the opposite. Netlabels sound like rather a good thing to me.
Here's the rest of the Wikipedia article on netlabels.
Your ears are feeling better already.