Unity is a middle-range game engine (cheaper than the million-dollar ones but more expensive than things like Game Maker) which has been used for indie games like Dock’s Tumbledrop, Derek Yu’s Diabolika for iPhone, Tale of Tales’ Fatale, and many more.
Unity Indie, previously around $200, has been renamed to just “Unity” and is now free. You can read more information on the whys on Gamasutra. Apparently Xbox 360 support is also in the works. To quote David Helgason from the Gamasutra interview:
“The thinking was that Unity Indie isn’t generating a significant portion of our revenue, and we’ve always had this vision of democratizing our tools. We have over 13,000 customers using our product, so we figured, let’s take Indie and just give it to everyone. Whether that becomes a cash flow positive or a cash flow negative – and some people will upgrade – is not really important. What’s important is to get this in the hands of as many people as possible.”