They couldn't recognize evil or good in anything. They were like small children in that they only knew how they felt, kind of like instinct.
Free will means that you have the ability to act even when you don't know right from wrong or good from evil. From the time we are babies we act and learn and experiment... but don't understand what is "right" or what is "wrong" in the sense that adults do, all we know as babies is that we are uncomfortable and cry to get our needs met. This is an act of the will, even though we don't realize it yet.
Adam and Eve were something like little babies but had the ability of an adult to walk and eat by themselves and even had the capacity to know and understand things on higher levels although they were not yet to the point that God saw fit to let them have that kind of knowledge neither that understanding as yet.
I personally believe that God eventually wanted mankind to have knowledge/understanding but it was not yet time. There is a time to tell a child about the facts of life and there is a time to refrain from telling them, for example. So, consider if we are thrown into a new situation that we have never heard of and have no understanding of, then we would be lost and would not be able to deal with it appropriately. It causes a problem when you experience trouble first and THEN learn and understand about it, because it is much more painful. Sort of like trying to protect your child from the evils in the world by trying to maintain their innocence and not tell them anything to warn them or prepare them (when they are ready) and then because they were not informed and taught by the parent, they are exposed to those things through other people or other means and given wrong information, which in turn makes them more vulnerable. But when a parent lovingly teaches their child of these things, (at the appropriate times) the child trusts and doesn't have to suffer harsh consequences because they were informed of the parent and trust the parent.
In Eden's Garden, there was no evil except for the knowledge of evil... destructive and creative forces in other words, (which can both be used for good). But Adam and Eve did not know of those things let alone how to use them for good, as yet, and here they were thrust into something they could not yet handle or fully understand, so, they had to learn the hard way. Also, there was a tree of eternal life there in the garden. God could not have them take that fruit until their conciences were again clear and the paradox created by inappropriated knowledge was cleansed. (From what I interperet, the tree of life was eaten freely of before the partaking of this knowledge fruit). So, from then on, they had knowledge but it was imperfect knowledge. This is one reason they had to be driven from the perfect garden... they had all this knowledge of evil now, but they had to come to understand it and come to understand how to deal with evil and to create good making their knowledge and understanding complete. Knowledge and understanding would have come much easier if they let God teach them in His timing, but they partook of knowledge prematurely and imperfectly.
**Edit: The only thing good about knowledge (of evil at least) is that you know what to expect and perhaps protect yourself (through positive/good means) or your loved ones from falling into the traps... (this, one does through giving right knowledge at appropriate times) you know what evil is and you have come to know how and why it may befall, thus being able to avoid it or at least know how to bring what is good out of something we see as destructive. Picking up the pieces to a shattered vase or glass for example, and putting them together with cement glue to make a beautiful mosaic table top. This sort of goes along with that saying; "you can't make an omelette without cracking a few eggs."
The downside of knowledge (when not appropriated) can be that you might have more knowledge or understanding than another person (which happens all the time outside of the garden). You can use what you know or understand to play who's smarter or who's better than who and so forth... or even to do more harm to another person than this. I have dubbed this; "abusing knowledge"
This can be seen as a picture of the story of the "Garden of Eden" in (modern day) action, I think of it whenever there is a disscussion about knowledge or understanding itself. This is one reason why i believe the story in Genesis, because it is a story that plays out to this day.