I think the idea here is "dumping". By subsidizing a free, best-in-class editor Microsoft prevents any competing paid options from gaining a foothold. This is not too different from their old strategy with IE.
What I mean by that is something without network effects. If your company uses Google Docs, you don't have much choice because that's where everything is (modulo apps that can sync to it so you can use a different editor).
For something like VSCode, at the end of the day it's still just a text editor. My use of VSCode doesn't stop my teammate from using vim.
For something like that, do you know how much of a pain in the ass it is at most companies to get them to buy something? The issue isn't even if it's $5 or $500. It's just going through the process of figuring out how to buy something, getting approvals, figuring out how to deal with the invoice, etc. Unless I'm already super committed to it, there's no chance when I can simply download any number of free options out there.
Then you have no competitors and can start charging the monopoly price, and no one tries to enter the market for fear you'll start dumping again.
Charging nothing for a product with no unit cost doesn't work like that. You're not forcing anyone to sell at a loss and the intent isn't to raise prices after they're gone.
The concern there is that you could come to dominate the market (even if the price remains zero) and then leverage that into other markets. If one IDE has more users than any of the others (market dominance) and it integrates with the vendor's hosting service and their proprietary APIs for their proprietary operating system and their app store and payment systems, that's more like tying than dumping.