The first category is made up of games that make money by charging you for either convenience or cosmetics (ex: Team Fortress 2, Realm of the Mad God, Dungeon Fighter, League of Legends). This is the better side, since you can get usually get absolutely everything in the game with enough time, effort, and trading without ever paying a single real dime. You'll just be advancing slower, since people with cash can just instantly buy what may take you at least a week to dredge up the virtual money for. These games can do well because people will be less hesitant to buy that rainbow-colored Nyan Cat knife, if they know it will both look cool and won't give them a particular edge (guilt-free). Of course, it can also work the other way, with people not wanting to buy anything if it won't help them with the game. Which brings me to the other category...
...made up of games that make money for selling you power. I call these "Pay-to-Win" games, because they usually overdo it (ex: Zone4, S4 League, Alliance of Valiant Arms, Gunz). You can play the game for free, but if you don't want to get constantly raped you're going to have to buy something extra or increase your skill level way higher than you would normally have to. This can come in the form of selling you the same stuff but with higher stats, and/or in the form of selling higher-level items to lower-level players. Some games take this to an even lower level, and sell whole item sets, effects, or even classes that you don't have access to unless you pay cash for them. And they will always be cooler, flashier, and more powerful than what you can get normally.
If you're talking about games that "aren't truly free", then you're talking about a Pay-to-Win game (P2W, I guess). People like applying this term to EVERY Free-to-Play game, because they can't get over the fact that they can't put some useless skin on their weapon/character without buying it. That doesn't make it a pay game. That just makes you a whiner. Might I direct you to your proper place?
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