Nick sum's it up fairly well. The free program lets you download Xcode, the API's and lets you build things for the simulator. When its time to go to the device or to the store, then you have to get the paid version. There are two of them $99 for a single person and like $349 or $399 for an organizational license. You do have to have documentation of your business, like tax ID's and such for the more expensive version.
Once you're paid your fee, then you can go to iTunes Connect and setup all your banking and tax information, creating an apps store identity and such for deployment there. You also get to go to the developer portal to create your certificates you need, give your app an ID, setup provisioning profiles and all the mechanical pieces needed to physically get your app on a phone.
Everything is done through websites except for one thing: To use the "Available in the App Store" logo, you actually have to sign a physical contract and mail it back... Go figure.