How does this even work? It says I don't need to buy GOG games that I already own on steam. Cue me going to Undertale (which I own on Steam) and I can't download it for free... what the hell?

If you're talking about Connect, there are only a specific number of games that are affected. Undertale isn't one of them.

It also says: "20+ games available today. More titles incoming."

This is not for all the GOG games that you own on Steam, sadly. Only for a certain (possibly still growing) selection that publishers agreed to. See the games listed under Currently eligle for GOG Connect (scroll down).

Also note that apparantly this event is time-limited. (The current batch of games is labeled "4 Days".) IMO this makes it more of a PR stunt than an customer friendly service, but you know what they say, don't look a gift horse in the mouth or something.

2 - Is every game released on GOG.com eligible?

We can only make a selection of games eligible depending on various agreements with our partners. You'll always be able to find an up-to-date list of eligible titles on this page.

Question 2 of the FAQ on GOG connect.

C'mon chums, it's not that hard.

Oh, but it is...

I assumed connecting the two accounts would automatically make any games I already have available. Regardless, I'm still looking forward to this, as I much prefer GOG over Steam due to not needing online connectivity to play. So if, Fallout New Vegas, Fallout 4, Skyrim and Civ V manage to make their way here, and are under the connect agreement, it will be very convenient indeed.

Yesterday a Blue kind if let slip that more ES games were on the way. :P

Indeed. Just connect your accounts and periodically check the Connect page. Hopefully they'll be adding more and more games to this and it won't stall out like the Reclaim Your Game thing did.

A Blue?

Is that some sort of nickname for a GOG Mod?

I wouldn't call them mods. They have zero control in here. :P

Blue is a term for a member of GOG.com staff, who have blue colored text.

GOG staff. Their posts are in blue text.

Okay "Person who works on the site" unless I'm to assume GOG is controlled entirely by computer AI xD

Uh, keep going, I'm listening... ( ͡° ͜ʖ ͡°)