The free edition is on-premises only . You host the server on your own Windows or Linux machine. (The paid version offers a cloud SAAS option).
Here is the exact breakdown of the free license (as of version 11): manage engine endpoint central 11 free
While it is the entry-level version, the Free Edition includes most of the core capabilities found in the paid editions: The free edition is on-premises only
Remotely install or uninstall software packages across your managed endpoints without user intervention. manage engine endpoint central 11 free