Where do the winnings come from?

[jsthomas64]

This is probably the most logical explanation, on-line poker with low and micro limits and inexpensive tournaments has made this a VERY inexpensive way for people to have some fun. If someone blows $10 - $15 on a Friday night playing 0.25/0.50; they probably don't care - that's what it would cost to see a crappy movie at the theater.
The only thing I'd add is that some novices(like me) see their losses as the cost of learning how to play better. I'm humble enough to admit I'm still learning and on-line is a VERY cheap way (compared to a casino trip) to get the basics and get a lot of hands under your belt. Then if you win a few you get cocky, move up and find out if you've really improved.