OGRE (Object-Oriented Graphics Rendering Engine) is a scene-oriented, flexible 3D engine written in C++ designed to make it easier and more intuitive for developers to produce applications utilising hardware-accelerated 3D graphics. The class library abstracts all the details of using the underlying system libraries like Direct3D and OpenGL and provides an interface based on world objects and other intuitive classes.
OGRE is not A Game Engine, but OGRE can be (and indeed has been) used to make games, but OGRE is deliberately designed to provide just a world-class graphics solution; for other features like sound, networking, AI, collision, physics etc, you will need to integrate it with other libraries, something several frameworks have done, and we have a collision / physics reference integration library as an example in our distribution.
Is it really free? The Ogre source is made available under the GNU Lesser General Public License (LGPL), which basically means you can use it however you like as long as release the source for changes you make to the core engine if you distribute your product. The source to your application or to new plugins you create does not have to be released (although it would be nice if you did). See the licensing page for full licensing terms.
Ankh is a point-and-click adventure game being made by Deck13 using OGRE