What tools (free) do you use to design software

The pencil add-on for Firefox is pretty good for simple diagrams and GUI sketches.

And if you don't like it as a FF add-on, you can download a standalone version for Linux or windows.

I use Balsamiq Mockups for UI design and Visual Paradigm Aigilian for modelling - it allows to nicely go from high-level business processes to granular requirements and UML modelling... And it's quite cheap.

ArgoUML has been my friend for many years when it comes to drawing UML. ArgoUML is a tool and you're asking about both tools and the processes used (i.e. "which artifacts do you create with the tools). We generally stick to user stories (agile project) and do not make "classical" use cases and use case documents.