You have to give them your iTunes password to allow them to authorize their computer... (UP TO 5 different computers)... then they can "purchase" the app on their computer - iTunes will tell them that they already bought it and it will let them re-download the app...
I don't really think it's a gray area...this has been default ever since Apple allowed Home Sharing. You can do the same with music from iTunes, and it's on the up and up.