The writers strike last TV season made one thing clear - more people are watching TV online than every before. The entire strike was centered on determining the appropriate pay for TV shows aired online.
With this said, Hulu is a pioneer of online television. First off, it is completely legal. Second, it has a quality line-up of videos and a major network (nbc) backing it.
The service is free due to 3 short commercial breaks placed throughout a half hour episode.
Services like Hulu are becoming popular for the same reason DVR is so popular. People are busy. They like to set their own schedules. Hulu and DVR give them this opportunity.
I've tried Hulu and I highly recommend it.