The Unreal Engine has given developers the means to create some great games. It's the same great engine that powered games like Deus Ex, Splinter Cell; and in its third major version, graphical blockbusters like Gears of War and Batman: Arkham Asylum. The Unreal Development Kit (UDK) is already free to use for non commercial and educational purposes. For just a small fee you can now earn up to $50,000 in revenue before paying any royalty fees.
The Unreal Development Kit takes a modding approach to game development, meaning there's no exposed C++ code to brave and resources have a sane and easy framework to work with. The engine uses it's own Unreal Script to script together game components and functionality. Access to the C++ code costs a hefty developer license. Since the UDK is free for all of us that aren't making money there's a lot of resources, help, and tutorials to be found on the Internet.
If you did make a great Unreal game, and did make over $50,000 in revenue, the royalty fees are a sharp 25%. If you're planning on building a game for the big bucks you might want to consider some of your other options. There are some great options out there both free and paid under a variety of licenses and on a variety of platforms.
Ogre 3d - MIT Licensed 3d Engine with a C++ API. While Ogre3d is "just" a graphics rendering engine, the modular code allows you to drop in new functionality like GUI libraries or PhysX wrappers.
Crystal Space - 3d Engine with a mixture of LGPL and GPL licenses. This engine is also in C++ but it does more than graphics. It has bindings in Perl and Java, and can run on just about anything. Crystal Space has something called CELstart, a scripting environment for Python and XML to make game creation quicker and more approachable.
Irrlicht - Another C++ 3d Engine released, but this one is released under a ZLIB license, so you can do pretty much anything you like with it. The engine also sports bindings for a large number of languages including .NET, Java, Perl, Ruby, Python, FreeBASIC, Lua, Delphi, and even Game Maker.
Can I sell games I make in open source game engines? - In most cases, yes, absolutely, and more people should. The MIT and ZLIB licenses are very straight forward, the GPL and LGPL licenses are a bit more involved to read through but still allow enough wiggle room to successfully sell your work. There's a pretty common miscconception that free software means monetarily free. In most cases the general idea is that you need to make your source code available. Depending on the license you might not even need to ship your code with it just as long as it's available somewhere. Of course, it's always nice to donate to your favorite Open Source projects, especially if you're turning a hefty profit from them.
Just because the engines I listed above are free, it doesn't automatically make them a better choice. These are just free open source alternatives. A budding developer strapped for cash might find it a little safer to invest their time in learning a platform that won't cost money. If a game never sees the light of day, or if it doesn't sell many copies, it will have of least saved its self a few bucks. In the case that it hits it big, it could save its self lots of bucks.