Free Mode is used for positioning objects around the scene. An object's position and rotation are saved when moving to another state. Change your state to Free Mode by selecting it from the Mode Tab on the Ribbon.
The two options available in free mode are:
Allows you to re-position objects by moving them along their x, y, z axis. You can do this by using the position gizmos in the Viewport with the object selected. You can also input coordinates manually through the Properties Tab.
Allows you to rotate objects around their center or pivot point (adjustable in drop-down displayed in the top left of the Viewport). You can use the rotation gizmo in the Viewport with the object selected. You can also input coordinates manually through the Properties Tab.
You can swap between these two modes by using the hotkeys or clicking the transform and rotate icons at the bottom of the Viewport.
Next: Animate Mode