DEFINITION

Open source software  (OSS) is computer software whose source code is available to the public under a  license that permits users to use, change, and improve the software, and to redistribute it in modified or unmodified form. It is often developed in a public, collaborative manner (Source: Wikipedia).

IMPACT ON e-BUSINESS

The open source movement is a phenomenon that is based on collaboration and sharing, two typical Internet paradigms. The practical part is that virtually everybody has access to the thus created software (or other open source work), its use, its modification, distribution etc. without being asked for a monetary remuneration. However, the use of OSS is subject to a license, a so-called Open Source Software License.

Copyleft   Free Software   Freeware   Shareware

Why does one need a license if the software is free?
Whereas the open source community has a strong feeling towards sharing, it does not necessarily want you to make the "mega-bucks" with their hard work. Therefore, you are compelled to maintain the "openness" and not use the OSS for creating proprietary software. Having said this, it is not totally true, as there are different OSS licenses, with different levels of "openness". This is also termed "copyleft": there is no copyright that restricts the use. Depending on the OSS licence type, there is strong copyleft (meaning that all derivatives and modifications are equally copyleft, excluding any proprietary right to it; an example is GNU GPL-General Public License); weak copyleft (where under some conditions parts can be copyright protected; e.g. GNU Lesser Public license, or MPL-Mozilla Public license); and non-copyleft, where derivative developments may be fully copyright protected, e.g. APACHE licence.

MORE ON OPEN SOURCE

What are the business models for OSS, in other words: How do they make money if they give the software away for free?

Their main business model refers to services: to advice on the software to be used (consultancy); to install, customise, maintain the software system; to provide training. This allows to comply with the openness of the OSS license and at the same time, earn a living.
TO AVOID CONFUSION: What is FREEWARE, SHAREWARE, FREE SOFTWARE? 
Free Software
Another term for open source software, based on the principle of "freedom of usage" whereas open source is based on the principle of "open source code". These philosophical differences are reflected in the use of acronyms such as FOSS = Free/Open Source Software or FLOSS = Free/libre/Open Source Software.
Freeware
Software that is given away at zero costs for use but typically without disclosing the source code and restricting any modifications or its commercial use.
Shareware
Shareware is software distributed for the purpose of evaluation by the final user.The user is allowed to try shareware out and to give copies to others, but if he decides to keep using it, he must register and pay a usually modest amount to the software developer (Source: IPR Helpdesk).

PRACTICAL LINKS

What is Open Source Software ?
WIKIPEDIA article on Open source
Creative Commons
Legal issues in OSS (Report of the Legal-IST project, mainly geared at lawyers)
Check the EUPL guidelines for users and developers to see what the EUPL - European Union Public Licence can do for you!

RELATED ISSUES

Licensing
Copyright
Copyleft