Presumably, "nazi" here is a stand-in for any form of communication not protected by free speech laws and / or is actively forbidden by government censors (or perhaps merely undesirable by social standards). Hate speech, anti-government advocacy, promotion of violence and terrorism etc will use "free" tier accounts because they want as little capability of being tracked to in-real-life people as possible.
They may or may not fully utilize the bandwidth, but they will absolutely take advantage of access to resources that don't require real identification, and that adds an extra burden of regulatory compliance on the company offering it (even if it is just hiring a few extra people to manage takedown orders, etc).
Things like Kiwifarms which provide a risk of substantial reputational damage if you're seen to be supporting them. There's a campaign on Twitter to deplatform KF from Cloudflare after more SWATting incidents, for example.
No, "nazi" is pretty literal - Cloudflare hosted Stormfront and the Daily Stormer for a while, both of which are actually neo-Nazi. Wikipedia and Axios seem to think Cloudflare stopped hosting Stormfront in 2017, and I don't want to visit a neo-Nazi site even to determine how true this is, but stormfront.org's A records in DNS do still point to Cloudflare IPs.
[Edit: someone found an article from later in 2017 where it seems like Cloudflare resumed hosting Stormfront just over a month after it had stopped hosting it.]
