This is how the article starts off:

First, it’s important to understand some basics of why baseball teams make money. This should be mostly obvious to many but for the sake of thoroughness, I will include this logic. The number one factor for how much an additional team earns in revenue is how many games they win and whether they make the playoffs.

I don't think I understand, and if I do, it's wrong. Or am I completely off?

I think he's saying that given team X, revenue at the margin comes from both additional wins during the regular season and from making the playoffs. If you want to get technical, marginal revenue comes from ticket/parking/concessions sales, not from "winning", but within a season, increased ticket sales largely come from more wins. Most other revenue sources (TV rights fees, radio fees, revenue sharing $, etc) are fixed in the short run. Making the playoffs allows sales of playoff tickets which are pure profit.

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That said, I don't think I agree with the analysis. First of all, the nash equilibrium strategy in an infinitely-iterated prisoner's dilemma is not to deny ad infinitum; rather, the correct strategy depends on the discount rate you use. If you don't discount future periods at all, that result is true. Start to discount them, however and the equilibrium changes such that sometimes, confession pays off.

What discount rate should a GM apply? Because I'm selfish and a hedonist, I live for THIS moment, and value the 2008 season a lot more heavily than the 2088 season. More practically, GMs who worry about their job security use a higher discount rate than 0.

It's pretty obvious that the "Prisoner's Dilemma" model doesn't describe how most teams are behaving now. In recent years, several teams have flouted commissioner recommendations with seemingly no consequences and no alteration of behavior by other teams - they are denying the crime while the Pirates keep confessing. As a result, the Pirates are imprisioned for multiple life sentences and the Tigers have Rick Porcello tearing up the Florida State league.

I always assumed the answer to this question was "Because Bud Selig has 'recommendations' that teams should follow"

Of course! That's why the Tigers started off on a losing streak... it all makes sense now!

I thought the purpose of Bud's discretionary fund was to provide incentives to teams to do things like follow slot recommendations. I know that's not the official reason, but the actual practical application of how the money is divvied out. The money is inconsequential to high revenue teams, so they can break slot with impunity, but lower revenue teams are risking a financial hit if they ignore slot.