Yes, "free by servitude" indicates he had been a convict (but his time had finished) and the name of the ship, Isabella Watson, that he came on is also listed. (That's what 'Ship to Colony' means, the original ship which he came on from the UK).
If you look at the convict records he is there. The surname is just listed as "Gafney". The ship - "Isabella Watson" matches the departure records. Some of the records have been digitised - in the conduct records he is on page 73, summary of that info:
Convict "Hugh Gafney" was tried at Cavan in 1842 and sentenced to 7 years for Robbery, he was a Roman Catholic, aged 27, b. Co Cavan. He was tried with his brother, who was also on the ship. Francis has similar details but was aged 19.