A person has to actually click your short link, otherwise it doesn't work.
If the victim uses VPN, the service will technically work, but will show wrong location.
There are multiple factors which come into play regarding accuracy of the result: Internet provider, quality of Internet in the area, specifics of mobile/home/office network used, pure luck, etc.
Most of the times the result is accurate on the scale of cities. So, if the city name is provided, you can be quite confident that your chat buddy is physically in that city or really close to its borders.
Everything is free forever!
Not possible! The victim will receive an innocent short link to some simple content chosen by you. It is not suspicious in any way. These short links are used quite often. You can easily say that you copied that link to cat pic "from somewhere on the Internet". For example, in the description of this youtube video there is a bit.ly link to their shop.
In other words, there is no way to catch you on something.
You can organize a genuine joke or surprise for your friends by "guessing" their current location out of nothing.
It is your own responsibility to guarantee that no laws and/or privacy restrictions are violated by using this service. Please, make sure that you are given written consent from all the involved parties for all the actions you are willing to perform, strictly before using ChatRadar.