A free item coupon allows you to give your client an individual item at no cost.  Typically this will be used for cases when a session comes with a free 8x10 or a free "Package A". 

One catch is that this is done by pricing id.  Say, for example, you have two different pricing sets each with an 8x10.  ProofBuddy considers these two 8x10s to be different items so you would need to make sure that your coupon is tied to the item from the correct pricing set.