A unit with Moves Freely spends no steps moving via the Move and Attack or Defend basic abilities, as long as the starting and ending locations of the step satisfy the Moves Freely condition. Moves Freely only applies to basic movement, which is movement from the Move and Attack basic ability and the Defend basic ability. A unit can combine free steps with regular steps, up to its movement limit. See the examples below for more details.
Example 1 w1, w2, and w3 are water sites. A and B are land sites. Sir Pelleas starts underwater at w1. He can take 1 step normally with the Move and Attack ability, so he declares the following movement path: w1 underwater -> w1 surface (0 steps, Moves Freely between water locations) w1 surface -> w2 surface (still 0 steps) w2 surface -> A surface (1 step) Note that Sir Pelleas cannot simply teleport to w3; Moves Freely requires the unit to declare a movement path, and some of the steps in that path might be free. Example 2 Same as above, but Sir Pelleas starts on the surface of B. He can declare this path: B surface -> w1 surface (1 step) w1 surface -> w1 underwater (0 steps) w1 underwater -> w2 underwater (0 steps) w2 underwater -> w2 surface (0 steps) The last three steps are all free, because they are between two water locations, per the Moves Freely ability of Sir Pelleas. Note that Sir Pelleas couldn't then continue from w2 surface to A surface, because that's not a free step, and Sir Pelleas already used up his 1 step for his Move and Attack basic ability.