"Freemium" refers to the business model, common on websites, to offer one level of service for free, and then, when the user is solidly hooked on the use of the service, to offer them a premium level of service for a fee. The difficulty of this model is to have a service that's attractive enough at the free level of service to drive premium conversions, and at the same time to have the free service be limited enough that upgrades deliver significant value.
In the e-book space, the traditional premium service is typically either the print version or an updated or otherwise enhanced digital edition. O'Reilly has used this model to great effect, by allowing authors to make free PDF versions available on websites while O'Reilly sells print versions through traditional channels.
In Doctorow's project, he offered print-on-demand versions through lulu.com -- http://www.lulu.com -- for $18 each, along with 250 "super-limited hardcovers" for $275 each. These were hand-bound on acid-free paper and included original paper "ephemera", and came with a memory card with the full text of the book and audiobook. The $275 version turned out to be the big moneymaker.
As e-book readers become preferred over print by users, using print as a revenue engine may run out of steam. Bloomsbury Academic is building a platform that also uses e-book versions as the premium. While CC noncommercial versions are available for reading online, the books will also be issued for purchase in print and on Kindle and Sony readers. It's possible that publishers will look at enhancing e-books with supplementary content or deep semantic mark-up as their revenue driver; a bare-bones open-access version would serve as promotional vehicles for the core product.