I had assumed this was documented in the DW Wiki, but when I looked just now, I couldn't find a description. Hmm...

Anyway, to answer your question: dw-free is the code that is freely available to anyone who wants to run their own server using DW's codebase. dw-nonfree is code that is only licensed for DW itself. So far it's mostly site-specific layouts (Tropospherical) and themes (Transmogrified). There's also "vcv" and "dw-ops" which are admin-specific.