In scientific studies, free-living
organisms are those that are left in their natural
habitat without extensive human
intervention. I've mostly seen it applied to humans, for whom the opposite is
institutionalized (in the sense of being confined to a
hospital,
lab, or other
institution, not the
Shawshank Redemption sense).
A study that makes significant lifestyle changes (such as controlling major
dietary parameters) is far easier and has greater
compliance when carried out on institutionalized subjects. However, confining and controlling them potentially introduces
confounds, such that your experimental findings might actually be an unusual
interaction between the
experimental manipulation and the unusual experiences of
confinement or loss of
liberty. Ultimately the same changes should be imposed on free-living subjects to test the findings under more
environmentally valid circumstances.