Developers of free online games usually work in one of a few environments. In the beginning, Macromedia Director and Java were the only two environments that allowed for the playback of web-based games. Other browser plug-ins such as Wild Tangent, VirTools, and Unity also arose.
When Macromedia Flash entered the market, it was little more than an animation tool. But as the scripting language inside of Flash evolved, it began to compete with the rest.
There has also always been the ability for developers to create custom plug-ins and Internet Explorer ActiveX controls. This would be similar to creating standalone applications, but those applications would only work inside the web browser. This was rarely done because it would take a longer time to develop and it would be hard to convince users to download these games because of security concerns.
Today, Flash is by far the most used environment for creating web-based games. In addition to their being a large pool of Flash developers, the flash plug-in is available in almost every web browser on the Internet. So when you develop a Flash game you have less of a concern as to whether the user already has Flash, as most of them do.
Flash game development is done using the programming language inside a Flash, known as ActionScript. This is an object oriented programming language that has undergone two major revisions since its release. The first two versions of ActionScript use the same internal flash engine to interpret the programming. This virtual machine is relatively slow and has limited Flash game development over the years. But a new virtual machine was developed for action script three that is much faster and has opened up Flash game development for more complex and speed-dependent games.
While Flash is a development environment, it is also a file type. You can use other applications to develop Flash files, or "movies" as they are called. Adobe Flex It is one such alternative to environment.
You can download a trial versions of Flash, Flex, and also Director at Adobe's website.