There's an official announcement page, that links to several FAQs, and players have written at least two guides to what this means, but they really fail, in my opinion, to sum it up concisely. So, with the understanding that this is partial and incomplete, and doesn't include some "edge cases" and "special cases," here's how it's going to work, from Tuesday on:
Free: If You Never Give Them a Dime, and Never Have
To play City of Heroes on a completely new, completely free account, all you need is to download the installer from cityofheroes.com and run it. All it will ask for is the basic customer information (name, age, address) and an email address; verify that email address and you're in.
Free players will be able to create two characters (not two per server, two total) on any but one of the servers. They will have access to eight of the fourteen character classes: tankers (heavy armor, weak melee), scrappers (medium-armored melee), brutes (halfway between a tanker and a scrapper), stalkers (rogues), blasters (ranged and melee damage), defenders (strengthen team members or weaken enemies, weak ranged DPS), dominators (crowd control plus ranged and melee damage), or corrupters (halfway between a blaster and a defender). Each of those character classes chooses two powersets (talent trees), one primary and one secondary, from a long list of each, yielding over 500 unique sub-classes available to free players. Character appearance is independent of the gear you equip, and can be almost anything you can imagine as long as it's humanoid, between roughly 3'6" and 8' tall, wearing "ballistic spandex," street clothes, a wide variety of uniforms, or almost any imaginable form of armor.
Characters from any of those eight classes choose, during the tutorial, whether to become Heroes or Villains, and that choice is permanent per character. Free players' characters cannot join supergroups or villain groups (guilds), nor can they use the broadcast chat channels other than /help.
The most important feature, the one that sets City of Heroes aside from almost every other multiplayer roleplaying game on the Internet, is this: you can team with anybody from your side. Not only can free, premium, and subscriber players team together, but the game is as level-independent as it is possible to be. When up to 8 players form a team, they all automatically have their stats (and, to a lesser extent, their powers) scaled up or down to the level of the person whose missions their assisting in. So it's the perfect game for you to play with your friends, because it doesn't require you all to put in the same number of hours per month. If all of your friends are level 50, but you have a life so you're only level 10, you'll have the stats of a level 49 character when you team with them, and gain normal level 10 XP for every enemy the team defeats; if your friends are all level 10 because they have lives, but you're level 45, they can join you, or you can join them on their level 10 missions (keeping your first 15 levels' worth of super powers, their level plus five), still gaining level 45 XP for every enemy defeated. If half of the team has to quit because they ran out of time, the next corner you turn in the warehouse, there will automatically be a lot fewer enemies waiting there, because enemy group size automatically scales to your team size, too.
Content: by my estimate, roughly 1,000 hours of hero content and roughly 750 hours of villain content that can be played solo, and that will scale in difficulty, automatically, to whatever size team you bring along with you, plus another roughly 20 hours of team-specific hero content and roughly 10 hours' of team-specific villain content (and a couple of dozen hours' worth of co-op content, and a few holiday-themed events). This includes all of the classic content from level 1 to level 50 on both sides, and the first two end-game raids if you want them. This also includes access to all social areas, plus the challenge PvP arenas, plus all four open PvP zones.
Together, that roughly 2,000 hours of game content tells the story of a timeline that was almost identical to ours up until 1930, when two tomb-robbers destroyed the power source that had created the original Greek gods, the Titans and the Olympians, unleashing its power on the world. Between 1930 and 2000, heroes and villains mostly stayed out of politics, fighting mostly only each other, so very little changed: there was still a World War II, still a Cold War, etc. But 9/11 never happened in that world, because it was pre-empted by something bigger: an alien invasion, the (First) Rikti War of early 2001. As a hero, you defend the original home city of America's superheroes, Paragon City (about 50 square miles of different zones) from dozens of overlapping and conflicting super-villain conspiracies, plus periodic invasions from hostile alternate timelines like Axis America and Praetorian Earth, plus occasional alien invasions like the Cthulhoid minions of Rularuu and the meteor bombardments of The Coming Storm. As a villain, you exploit that situation to make yourself wealthier and more powerful. Free players will get new content, after that, but not very much of it or very often. City of Heroes averages about three free "issues" per year, and it looks like the best estimate is that each of those issues will include another 10 or 20 hours' worth of new free content.
Premium: If You Give Paragon Studios Some Money, but Don't Subscribe
A one-time purchase of $5 (via credit card or PayPal) buys you 400 "Paragon Points" that can be used to buy things on the new Paragon Market. That one-time purchase (or any prior subscription account, even if you only used the one free month that came with a boxed set) grants you one Reward Token, and unlocks the second of what they call the reward levels, which gives you broadcast chat and the ability to join supergroups and villain groups (guilds).
For example, 400 points will buy you all of the optional costume parts from any one of the old $10 add-on packs; prices for cute little optional powers or pets range from around 50 cents up to a couple of bucks. You can also use Paragon Points to unlock some of the other features not included in a free account, on an ala carte basis, including the other six character classes: masterminds (summoners) and controllers (crowd control plus buffing and debuffing) for $10 each, and the two hero-specific shapeshifter classes and the two villain-specific soldier/assassin classes, for about $8 each. Most of these purchases are per-account, not per-character, and most are permanent. There are a few that are per-month; for example, it costs $2 per month worth of points to be able to craft better-than-common equipment, and another $2 per month to use the auction house.
For every $15 you spend on Paragon Points, you earn one more Reward Point, each of which grants another account-wide perq; every roughly 6 points unlocks yet another reward level, with even more perqs and permanent unlocks, like special powers, special costume parts, or free respecs. Past subscribers get a little more than one Reward Point for every three months' they were subscribed.
Content: One of the more expensive unlocks gives you an extra couple of hundred hours' worth of content (for one month), an alternate level 1-30 experience where you see the current in-game storyline, the Praetorian War, from the other side; that's a $15 per account one-time unlock for the first 20 levels and another $7.50 for the next ten levels. For $15, you can buy (what I think is a one-month license to?) the Alignment System, several dozen hours' worth of extra missions that can be run to change heroes into vigilantes, vigilantes into villains, villains into rogues, and rogues into heroes. And for $5, you can buy one month's Signature Story Arc (for both sides), a brief task force that will move the current storyline forward by another month.
VIP: If You Subscribe for $15 per Month
Subscribers get everything listed above, and $5 of their $15 goes straight to Paragon Points; they also get a package of monthly benefits that, if bought separately with points, comes to a lot more than $10, including the monthly "comic book issue" in-game missions called Signature Story Arcs, the whole crafting and auction house system, the side-switching system and its unique missions, and one free server transfer per month. They also get a holy heck of a lot more character slots for free: 12 per server. If the thought of rubbing elbows with "freebs" worries you, subscribers also get their own subscriber-only server.
The biggest thing that subscribers get (on top of all of the above) is the end-game system: Incarnates. They're a series of end-game raids (four of them so far, more coming) by which players steal, fragment by fragment, the power of the incarnate gods themselves, to craft amazing class-independent super powers (five of them so far, another five coming) that can be used in any level 45+ content, including one of the open PvP zones.