I know it's a way of doing a part time masters course, working at the uni (permanent job) and getting the fee waiver. If I work
part time (50% or over full-time hours) I can be considered for a full fee waiver.
I just wondered how these fee waived places are funded in real terms. Would it be from the fee paying students? The university I expect would need a certain amount of fee paying students per course to break even or make a profit.

The fee waivers don't need to be funded - it's a just a reduction in income for the university/department. This is negligible in their million £ income per year. Universities get their money from student fees, research grants and any investments they have. It's not a straightforward case of money in equals money out. Science degrees are more expensive to run than arts degrees for example, so universities move money round as they need to.

Thanks. I was thinking about the one to one tutoring, mentoring or supervision for the fee waived student, and how the tutor or supervisor is paid for this time.

Supervisors or tutors are either paid an hourly rate or on a salary. It won't make any difference to them whether you are paying fees or not - they will get paid the same either way.