The contest is split in 2 phases. Phase One, in June, will have Artists make CC-BY-SA 3 / GPLv3 Sprites, Tilesets and other assets. Phase Two, in July, will have Game Devs use said assets and make their own games, licensed GPLv3.
The donations they're gathering will be used as cash prizes for the contestants, as well as to pay for commisioned art (So that there's at least a very solid base for the Game Devs to work on during Phase 2)
I'm excited for this contest. Spread the word, there needs to be more contests like these that further spread Free Software. :-)