Mr. Waathiq locates "a client" who wants a website and expects to pay $500 or he will barter goods and services for himself so no money changes hands. In this case, he doesn't receive any money to pay anyone for site development.

Mr. Waathiq accepts client price and may collect a portion up front.

Mr. Waathiq contacts a Web Developer (via Craigslist or some other venue) who quotes Mr. Waathiq $1000 for same website after some negotiation.

Mr. Waathiq authorizes $1000 for Developer to do site. The designer will not have access to client.

Designer completes work.

Client OKs site and pays Mr. Waathiq $500 or provides a bartered service.

Mr. Waathiq then stiffs the designer promising to pay them sometime in the future if only they'll do another job. If the designer bites, Mr. Waathiq gets more free labor for another "client." In either case, the designer is never paid (or at least never paid in full -- smart developers want a deposit) and Mr. Waathiq just finds a new designer.

Generally, the "client" is pretty happy with this outcome initially. Though changes to their site are almost always done by some "new" designer and Mr. Waathiq has some story about how the original designer was fired (most quit when they are not paid.) However, after a few interations of different designers on a website, most of them look pretty patched up and the client is eventually left with a poor looking or unsupportable website.

Mr. Waathiq then obtains new client(s) and designer(s) and does the same thing again.
(See step one since we will start from the top again).

Yes. And they would win, (in the past many have) but Mr. Waathiq is essentially bankrupt and the line of creditors is so long you will never collect. So given the costs and time associated with suing you'd just be throwing your money away.