Freestyle dance, aka street dance or vernacular dance, is a term to describe dance styles that evolved on the streets or in nightclubs--not in a dance studio or other formal setting. Freestyle dance can exist in all dance forms, but there is no particular choreographed routine, and the dance freely flows as the dancer wishes. Once a dance is designed, choreographed and follows a detailed performance, it becomes a particular style of dance and no longer is recognized as freestyle dancing.
You don't need to know how to dance formally in order to freestyle dance--but having rhythm definitely helps. Play music to which you enjoy listening and that inspires you to move your body. Put on some comfortable clothing and shoes, and start moving to the music.
A dance DVD is one of the easiest ways to learn to dance in the comfort of your home whenever you want. DVDs allow you to practice basic dance moves that you can put together in your own way. It provides a template from which to work. Repetition is key to feeling comfortable dancing freestyle. DVDs provide the opportunity to repeatedly observe dancing as well as to identify music beats. If you don't want to spend the money on a DVD, YouTube has some "how to" clips.
After you learn some moves, try them out in front of a mirror. This is your chance to create some new moves and see how they look. If the person in the mirror is not laughing at you, move on to dancing with friends.
Dancing with a few trusted friends in your home is a great way to learn to dance freestyle. Once you let go of your inhibitions, branch out to clubs, others' homes or on the street. Since there is a lack of structure in freestyle dancing, getting rid of inhibitions may not be as easy as you think. Move to the beat in your own style. Make up your own dance moves. Remember to practice. Before you know it, dancing will feel so natural, you'll forget you ever had to learn how to do it.