In its most basic sense, fair use refers to using copyrighted material for a limited or transformative purpose. Transformative means that with the help of the original material, a new work has been created. Under the fair use law, original material can be used without the original owner's permission. Uses for the material can include commenting or criticizing the material. Another use may be to parody the original material.
Fair use can also be used as a defense against infringement. If your use of the material comes under any of the headings above, then it is not considered an infringement of copyright. Copyright infringement is a very serious crime. If you are found guilty of infringement, the penalties can be severe.
Millions of dollars are spent each year to determine the correct appliance of fair use. The judges and lawyers who created the fair use law did not want to limit its application. They wanted it to have a wide meaning that could be open to discussion, in much the same way that freedom of speech is.
Fair use definitions usually fall under two basic categories. The first is comment and criticism. For example, if you are writing a book or film review, then you can use some of the original work in the review. Using a few lines of a song in a music review is also considered fair use. A student or teacher can copy a few paragraphs from a news article for use in a lesson and it is not considered infringement.
The rationale behind the uses above are that the public and sometimes the original artist may benefit from the review you have written. The original material will strengthen the review you have written. The second definition to which fair use can be applied is parody. To parody someone's material is usually to lampoon or imitate it in some way for comedic or satirical use. The original material must usually be well known in order for this to work, and extensive use of the original material is usually permitted.
Even so, copyright and fair use laws have ever shifting standards. The courts have spent a great deal of time and money deciding what does and does not constitute fair use. For instance, an idea cannot be copyrighted. It is only when the idea is put down in some sort of tangible form, such as when it is written down or performed, that the creator legally owns it. You should check carefully the definitions of fair use before using or "borrowing" anyone else's material.