Then am I supposed to send him those mats and he will craft the item for me at no fee and send back to me?
Often they'll already have the item in stock so you'll give the mats and receive the item in a single transaction. But essentially yes.
I hardly believe in that, what would be the purpose of it?
They're hoping to get a crit, which results in two items and allows them to sell the other on the GTN. I don't remember the exact crit chance, but I think it's around 15-20%. If you're selling the items for 2 million, this translates to 300k-400k profit per crafted item on average.