I am wondering if I need to pay for a cloud service to make push notifications work or if Microsoft provides one for free? I was asked to make an app using this windows phone feature with the assumption that it was a cost free solution.
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The short answer: you need to pay for one.
You need a Web Service (WCF works nicely for this) that the user’s phone can send a request to, and that service in turn makes a separate request to Microsoft.
When this is set up, there’s an authentication token passed around to let your Web Service be authorized to send messages to that specific phone (via a request sent to Microsoft).
Well, the Web Service needs to be hosted somewhere (and it needs to provide an SSL (https) connection that the phone can use). That typically costs money (something like $5-$20/month depending on the host)