This might sound a little weird, but they're paid out of the value of the overall system. Overall, the Steem system is worth something; this value comes from all the content that is generated and propagated on Steem. Right now, the market is valuing this at about $250 million US, but this number is changing rapidly. The developers of Steem figured out a clever way to pay a small fraction of this total value to content creators and upvoters. This is done by creating new STEEM (which is basically a currency) and putting it into a pool that's distributed to content creators. When you create new STEEM, you dilute the old STEEM, and it's like you took a very tiny slice of that $250 million and shifted it around so that the creators have more of it than before.
The big question is whether this can possibly continue. I suspect there will be a robust discussion emerging about why STEEM should have any value at all.
So there is no plan to stop making new Steem so for the price to stay at current value, the market cap has to grow every day?