Freeform role-playing is a system-less, dice-less endeavor that is less "game" and more "collective storytelling." The action is controlled by the imagination of the storyteller (GM) and players, who decide what should or should not happen based on what would make the best story and not the results of any arbitrary contest such as rolling dice, flipping coins, or throwing rock-paper-scissors. Creative writing is essential to good Freeform--without it, nothing happens.
While there is not a defined "character sheet" for Freeform, a well-developed character should have many of the things found on the character sheets of other systems: that is, the sheet should identify the character's physical appearance, abilities/traits, skills, personality, equipment, and any other information the player feels essential to describe who the character is and what he or she can do. The sheet then serves as a guide both to develop literary conflict (essential to an interesting story) and to resolve conflicts (by suggesting plausible courses the character might choose to take in the face of a given situation). Just because there is not a defined system for establishing a character's abilities and skills does not mean that the character can willy-nilly develop super-powers; it is precisely for this reason that Freeform demands a high level of maturity on the part of the players and GM to set reasonable but interesting bounds on each character's prowess and potential. In most major works of literature, it is the flaws and foibles of a given character that makes them memorable and worth reading about, and characters who always succeed are frequently considered flat/boring.
Good storytelling requires a high degree of collaboration between the players and GM. In the most ideal case, a GM should not be required for a Freeform game, because the players on their own would be capable of regulating the interactions of their characters in a way that is mutually entertaining. Players would also take full advantage of the freedom to write inclusively of their surroundings, without fear of stepping on the storyteller's (or other players') toes. However, it is often the case that players find themselves stymied by this very freedom, because they are used to games where the outcome of a given situation is guided by the roll of the dice. Additionally, a Freeform game that involves mysteries or secrets kept from the players requires the storyteller to take a more active roll in directing the show. The roll of the storyteller is therefore threefold: (1) to propel the action of the story forward by suggesting the direction of a particular scene toward resolution or setting a new scene; (2) resolving literary conflicts in the course of the story where the players cannot agree on a path forward; and (3) ensuring the players' characters act within the bounds of their character sheet, and that character growth is appropriately guided by the stories already written.
Similar to the more traditional games, there are generally not "winners" and "losers" in Freeform. However, the frequently uncomfortable middle state of "the dice results were bad but I still had fun" is eliminated. The only way to lose a Freeform game is to become disengaged, reduced to the role of observer. So long as you participate in shaping the story, you win!