The theory that Low Cost Airlines and Ultra Low Cost airlines use is that they can charge for all of the extras (seat selection, food, checked baggage, even carry-ons and printed boarding passes for some ULCCs). It doesn't matter if the extras cost the airline anything or not, they make their money on the extras. They can use this additional revenue to lower the basic seat price for everyone.
The problem is that Air Canada is used to be a mainline carrier, but acts like a LCC some of the time. It charges for extras for North American flights but not international. It is confusing for the occasional passenger who only gets on a airplane once or twice a decade.