Free-cutting steel is a steel that is designed to form small chips when you turn and mill it. This increases the cutability of the material as smaller chips shorten the contact time between the chip and the cutting tool. This in turn leads to reduced friction and reduced heat energy transferred to the tool. The reduced heat supply leads to reduced wear on the tool.
By adding small amounts of lead and at the same time increasing the sulfur content slightly, the desired chip-breaking effect is obtained.