"take my music from itunes"
So you hve itunes
"make playlists"
Can do this on itunes
"transition into each other seamlessly without any breaks in between"
Can do this on itunes with the crossfade songs option. Play around with it to see how much crossfade you want.
"but id like to be able to fix the order of the songs"
Can do this in an itunes list
Also the smart palylist feature in itunes can really make some interesting lists on music if you play with it a little.
"songs on queue"
Can do this with an itunes list. Say you have 10 songs in an itunes list. If you play them from 1-10 then all the ones yet to be played are the upcoming songs on queue. And if you want to play random songs from set playlist you can do that to with the itunes DJ option. And you can set the upcomming songs from 0-100. As well as the recently played songs from 0-100. You can even allow guests to request songs with the iphone or touch.
"I would like it to be FREE"
itunes is free for windows and OS X.
And another thing you'll need to know. ituns also has the ability to adjuct the levels of base/treble etc of the music output so you can get the sound right on whatever speakers are being used. And I'm sure you can set the leves for each song individually. Nice to know if you are doing a soundcheck before hand.
Sure itunes is not a DJ software application by any stretch. But just by answering your question I surprised myself at how well itunes can DJ at a party.
And I know you wanted a free option. But there is a piece of hardware that is nice for DJers. And it's the airport express. With it's airtunes option you can have the computer anywhere you want in the venue. It does not need to be tethered to the sound system with wired. All you need is the tiny airport express tethered to a powerpoint and the speakers. I know this is not at all what you're asking, but it's nice info anyways.
I would have a rethink about itunes before you try to search around for some DJing software.
Here is a few links for some DJing software. Some of these can edit the songs a little while they are playing. A little like a vinyl turntable. And they can add in vinyl sounds if you want too. So make the music sound like it was from a real vinyl turntable.
DJ software for Windows and Mac OS X
Mixxx | Features
djay » The DJ Software for Mac & iTunes
DJ-1800 - Professional DJ software for the Mac
Macintosh Music Software: DJ - Mixing (Shareware Music Machine)
If it was me I think you have 2 options.
1. Just use itunes. But cause you can't emulate turntable features on it, I'd be looking for the club/dance/extended edits of tracks you are after. if that's your thing. That's what I do at parties. I'm no professional DJer so I let the professionals mix the tracks and I just use thier mixes. And crossfade them when I need to for the longer "periods" of music. But even without the DJ/mixer edits itunes does rather well. I've used just itunes before and it worked well.
2. Try to find some DJ software that has the features on it. An app that works with itunes here is nice but not necessary.