Most people use the term "self-publishing" rather loosely. What they mean is usually a company that is paid a fee -- the lowest one I know of the fee chargers is $499 USD -- and they put the book into print using some form of Print On Demand technology (POD). That set-up fee does not include anything more than putting the ms into an auto formatting software and creating a cover for the book, plus placement on their website. World distribution is most often simply uploading the book onto one or more third party online vendors.
If you look around there are several free companies. They recoup the free part in the price of the book to the author. Of course, it is the usual situation of what you put in is what you get out. It doesn't fix things for you. You book is printed exactly like what you put into the software.
Whether a set-up fee is paid or not, the success of the book is totally up to the author to drive sales. There are a million and one (roughly) companies that sell authors (glassy-eyed authors) packages for marketing and goodness knows what else. Their pitch says all the things everyone wants to hear and can empty the writer's pocket quickly -- but I've written about this several times, and I'm not the only one who has.
What self-publishing means in the strict interpretation of the term is that the author causes their book to be published. They either do the work themselves or hire it done. What work would that be? Goodness, where to begin. Basically, self means self. It includes everything from editing to binding choices, paper weight, formatting, cover art design...and EVERYthing in between, including paying fees to be listed online. This is total financial responsibility for the books, so the best shot is to learn everything needed and spend the money to get it right the first time. The author better believe in their book because the investment won't be recoup'd overnight.
Frankly not every ms is destined for the big NY publishers. This is a business industry and just because the writer's spouse, mom/mum, or Aunt Edna loves the ms doesn't mean it will be published and a best seller.
The good thing about so many ways to get published from the largest imprints to the smallest of presses is that a savvy author can best target the publication route that fits the ms' potential audience. While I do like the folk art quality of some self-initiated books, I also like a book that is commercially driven, if the writing is sound in both cases.
I found the following in the comments on Galley Cat's blog. I added the bold to the text.
"...The reason self-publishing won't kill traditional publishing is that most authors can't edit their own stuff and/or aren't willing to hire someone competent to do it for them. A lot of readers are willing to put up with bad grammar and awful spelling on social networks, but how many are going to want to read whole books that way? Anyway, it's not just a question of grammar and punctuation: editors help with plot development and characterization too..." Paula_B
Excerpt came from the comments here: http://www.mediabistro.com/galleycat/publishing/will_there_be_book_publishers_in_10_years_140865.asp#
BTW, Galley Cat has always been a good blog to follow.