Lift & Thrust
The solid rotor generates lift the same way a solid wing does--mass flow. Its purpose is to provide lift in horizontal flight, not vertical flight--that's what the rotor blades are for.
You also use something other than the rotors to generate thrust for forward flight, like a jet engine. The rotors just take you straight up & down at low speeds. Since the outer parts of the rotor blades do most of the work, the idea is you can put a wig over the inner part & pack away the rotors when they're not needed to cut drag in forward flight.
As to keeping the disc spinning, probably because this is just a quick & dirty proof of concept, so why bother? DARPA just does the first draft, after that they let someone else worry about dotting the i's and crossing the t's.
As for cash, I'm surprised they can get something through a wind tunnel test for only $3mil. They're getting a discount, I'd say. You've got to get the test articles made & instrumented, get the facility set up, get the hardware in, do the test runs, reduce & deliver the data, analyze it and write it up, ten clear out the facility and throw the test article in the oneyard--unless you refuse to pay and the next program that wants to test ends up paying to get your junk out of the test cell.
My guess is the engineers are delivering pizzas at night and getting laid off 3 months each year to help make the $3M budget. Certainly they're not giving up money on janitorial services on "mahogany row."