.tk is the country code extension of the sunny little Island of Tokelau. Since Tokelau has only about 1500 inhabitants, no natural resources and not much other ways to generate income, they started giving away .tk adresses in 2002. From their website (www.nic.tk):
Dot TK is a joint venture of the Government of Tokelau, its communication company Teletok and Taloha, Inc., a privately held company. The Government of Tokelau has appointed Taloha, Inc. as the exclusive registration entity.
Taloha is privately funded and has offices in San Francisco, USA and Amsterdam, the Netherlands. With its management team, an experienced staff and multi-redundant backbones in both countries Taloha can handle millions of registrations.
Taloha is working together with PowerDNS.COM BV in the Netherlands, the leading provider of dynamic nameservers. By deploying the innovative technology of PowerDNS, Taloha is able to sell a domain and see it in action in seconds, where regular top level domains take days before the acquisition is processed.
Taloha acknowledges Dot TK can have a big social impact on the lives of the people in Tokelau. The primary goal for both Teletok and Taloha is to increase the awareness of Tokelau in the world, establishing relationships with larger corporations who can provide communication, education and medical expertise to the region and directly funding the island of Tokelau with royalty fees paid over domain names sold. This way the government of Tokelau can grow towards a more financial independent situation.
After registering, the site lets you claim three .tk domains for free, but with a pop-up ad when hitting the page. There is also the so-called PAIDDOMAIN.TK option, where you can buy a .tk address for 9,95 USD (or about 10 €) a year. Some domain names are entitled to higher fees due to their extra value (such as sex.tk or shopping.tk).