Earlier quoted context omitted.
By how much? I suspect they simply were operating at a loss to build up their brand. Jet.com did the same thing.
HotelTonight's model is to find and offer up rooms for last-minute demand that would otherwise go empty. Hotels are happy to offer discounts for these. It's really just automating the same deals you could get if you called.
Edit: I'm going to have to retract my comments about cheapest price being on official hotel brand websites. I did a cursory search and find many cheaper options on Hotel Tonight (and expedia) for same day reservations than the brands, and while I haven't looked at all the brand's best price guarantees, at least IHG's exempts them from having to provide the lowest price within 24 hours of checkin, so it seems like a loophole to let them dump rooms for cheaper on third party websites day of arrival.