How does this work? Why would people let randos use their home internet connections? I googled it but the companies selling these services are not exactly forthcoming on how they obtained their "millions of residential IP addresses".

Are these botnets? Are AI companies mass-funding criminal malware companies?

It used to be Hola VPN which would let you use someone else’s connection and in the same way someone could use yours which was communicated transparently, that same hola client would also route business users. Im sure many other free VPN clients do the same thing nowadays.

I have seen it claimed that's a way of monetizing free phone apps. Just bundle a proxy and get paid for that.

>Are these botnets? Are AI companies mass-funding criminal malware companies?

Without a doubt some of them are botnets. AI companies got their initial foothold by violating copyright en masse with pirated textbook dumps for training data, and whatnot. Why should they suddenly develop scruples now?