There is an old saying in publishing. "Money flows toward the author." This used to describe a pretty clear-cut way to distinguish scam artists from legitimate business partners. If money flowed toward the author, whether as royalties or advances or some other payment form, then the deal was legit. If the author had to pay any money for anything, the deal was questionable at best and a scam at worst.
This bright-line test is a little dimmer in the age of direct publishing, but the basic principle still holds true. As an author, you should get paid for your work. You might have to pay someone else to craft the container (the digital files or physical book), but your piece of the package (the writings inside the container) should still earn you some form of payment. You might have to pay another creative professional to make part of the package, such as the cover art, but this is only fair because they, too, should get paid for their work.
Money flows toward the author whether you publish traditionally or through new methods. Does this mean it's bad to give away promotional copies of your book? No, because that is a form of promotion or marketing, and if done correctly and if luck is on your side, it will result in a flow of money toward the author after the freebies are distributed. That is, PR and marketing efforts are not in the same category as paying someone else to publish your work (vanity presses) or handing over copies of digital files to pirates. If an expenditure now can result in your enrichment down the road, it might be a worthwhile long-term investment. But if someone else will make money on your work now, and you are hoping that leads to money for you later, you're probably playing a sucker's game.
What about this blog? We give away our posts for free, after all. Yes, but we sell other things in other ways, and this blog accomplishes two things: it raises awareness of our expertise, and it allows us to build a network within the community of authors. This leads to other forms of payment, such as private editing work or paid workshops. So this blog is a form of PR, in a sense, even though it probably has a low ROI -- so low that it would be fair to say we do it for fun and an occasional cash bonus.
In any case, the current climate makes it a little difficult to know when an expenditure makes sense and when it is a scam. Some people take a total-DIY approach to publishing because they are afraid of getting taken by one of the many con artists claiming to act for the benefit of the author. Some people take a "fuck it" approach and distribute everything for free on the theory that pirates will steal it anyway. Neither of these approaches make much sense if you're taking a long view of your career.
Money flows toward the author. But this doesn't mean you can release a shoddy DIY product and expect it to prosper, and it doesn't mean you should spend every waking hour policing pirate sites. Today, it means the same thing it meant yesterday -- you will form business partnerships with people who can help you bring the best possible product to the market. In traditional publishing, those partnerships are formed with agents and publishing companies, who in turn form partnerships on your behalf with distributors and retailers. All of you have the same goal, to maximize the flow of money toward the author. The bigger your flow, the bigger their flow.
In nontraditional publishing, those partnerships are formed on different sets of principles, and for some parts of the product, you will pay flat rates for services instead of paying per-copy shares. Yes, this means money will flow away from you during the production phase.The trade-off is that you retain more control over the final product and you keep a bigger slice of the per-copy pie during the retail phase. With luck and work, money will still flow toward you.
So how do you know if you're getting taken? Where does the money go? Where does the money come from in the first place? For example, there are file-sharing sites where authors voluntarily upload their work for free. In theory, readers then show up, download the files, and leave reviews for other readers. Some authors view these sites as a way to build readership. But where does the money come from if the readers aren't paying any fees? From data mining, most likely, and you're not seeing a share of that revenue stream. So you're giving away your work so that someone else can profit from user data. This seems like a bad arrangement to me.
If you want to give away some of your work, do it in a controlled manner designed to reap long-term benefits. Post a free story on your website, or arrange for freebies through a retailer or review site that can generate paid sales after the free period expires. You might be very eager to build readership, but don't be so eager that you sacrifice your career, enrich strangers, and serve as a warning to others.