Both - initially the engine source will be put out to help boost the community and mods around the game - a game is being built so that relevant features are added to the engine. Kind of dogfooding my own engine I guess. :)
No royalties or fees are charged.
I also consider any licensing deal offered to me with pretty loose restrictions (and I have had two bigger requests in this regard so far).
If/when I get to the point of opensourcing, it will be a very permissive license - like ZLib or MIT.