Fair Use is an exemption that is provided within the copyright law, that allows someone to use a copyrighted work without permission.
There are four factors considered for fair use; not all have to be met in order for the fair use argument to be used - however, just meeting one of the factors can also not necessarily be considered conclusive.
the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
the nature of the copyrighted work
|the amount and substantiality of the portion used in relation to the copyrighted work as a whole;
what it the 'essence' of the work?
|the effect of the use upon the potential market for or value of the copyrighted work|
The difficult aspect of fair use is that there is no hard and fast way to know if your use is a fair use; that can only be decided by litigation. All four of these factors need to be considered when trying to decide. A fair use analysis should be done on a case by case basis.
For example, anything used when teaching a class is probably an educational use, which is one of the four factors. However, this doesn't mean that a court would rule favorably in every single case that involved teaching; the other factors also play a part.
Was the use transformative or a direct copy? There is more leeway for a transformative use, such as a parody or mash up, than for a direct copy of a piece of work. A good example of this is the Andy Warhol Campbell Soup can paintings; while they directly copied the cans, their transformation is what made the copy allowable.
Was the amount used reasonable or was it the entire work or the "essence" of the work? Did the use have an effect on the market for the item? Was the work used fiction or non-fiction? Courts tend to look more favorably at allowing the exemption if the item was nonfiction. For example, using part of a newspaper story vs. using part of a novel.
This checklist is a handy tool to use when considering fair use.