If the official product is superior to the free one, people will be more inclined to buy it. Steam is a great example. My friend used to pirate everything and very rarely bought anything. However, he now routinely buys games on Steam due to it being more convenient than pirating. All his games are in one place and can be downloaded and installed with a single click, along with automatic updates.
This is it in a nutshell. In my view Valve has come as close as anyone is ever going to get in 'solving' the piracy problem until all games are "free". As in Free-2-play microtransaction abominations. **SHUDDER**
But CD Projeckt is doing it right. These guys are awesome. I've bought two copies of the Witcher so far and will be giving out more as Christmas presents, because this kind of goodwill towards gamers deserves to be rewarded.
“The greatness of a nation and its moral progress can be judged by the way its animals are treated.” - Mahatma Gandhi