Q. What is Fair Use and what are the four factors of Fair Use?

From Copyright.gov: 

"Fair use is a legal doctrine that promotes freedom of expression by permitting the unlicensed use of copyright-protected works in certain circumstances. Section 107 of the Copyright Act provides the statutory framework for determining whether something is a fair use and identifies certain types of uses—such as criticism, comment, news reporting, teaching, scholarship, and research—as examples of activities that may qualify as fair use.  Section 107 calls for consideration of the ... four factors in evaluating a question of fair use..." 

The four factors to evaluate whether or not something is a fair use are: 

• the purpose and character of your use
• the nature of the copyrighted work
• the amount and substantiality of the portion taken, and
• the effect of the use upon the potential market.

Pro tip: Only a court can decide if a use is fair/what is a fair use--after you've "used" (ie copied) the copyrighted work. Fair use is a right built into the law, but even if you're found to not have infringed on someone's copyright, you've still been sued. Thus, a question to keep in mind is: will someone find your use worth suing over? What a lot of it will come down to is mitigating the risk of even having to go to court to find out if something is a fair use. Here is some incomplete insight into what each factor tries to get at (we also recommend copyright.gov's "Fair Use Index" landing page for something more in-depth than what is below): 

• the purpose and character of your use - are you using the work as it was intended, or are you transforming it into something new? Learn more about transformative uses here. 
• the nature of the copyrighted work - some works are seen as more creative than others. A fictional book is seen as more creative than a nonfiction one. Learn more in this FAQ about the second factor. 
• the amount and substantiality of the portion taken - Keep in mind, sometimes using the entirety of a will be a fair use, like in the Grateful Dead posters case. It all depends on what you do with the work. Guidelines that say you can scan a chapter or 10% are not law. They're just guidelines and will not protect you from being sued.
• the effect of the use upon the potential market - will your use substitute for someone wanting to buy the original, for example? 

Tools for understanding fair use, as listed in the Copyright Guide's OVERVIEW & TOOLS box:

• Fair Use Evaluator [Tool]

  This will ask you questions about your use and create a PDF summary you can retain for your records, should you need to justify your use later. It is better for tracking your use. OR you can select "Learn more about Fair Use," but it does not walk you through your choices for your summary. The assessment is still on you and the options are either/or. Not recommended highly.

• Search Cases - Copyright.gov [List/Database]

  Learn about fair use within specific court cases.

• Fair Use Checklist

  This checklist is provided as a tool to assist you when undertaking a fair use analysis.

• MIT Fair Use kaleidocycle [Tool]

  Printable tool.

"...fair use becomes real only when people actually use it; like a muscle, it can shrink with disuse. Too few people today understand how it meets the needs of copyright policy as well as their personal creative needs.

...

Fair use is in play whenever you have the right to take copyrighted material without getting (or even asking for) permission from copyright holders or their agents. In practice, fair use is simple to apply. There is no fair-use approval board, and no one needs to authorize your decision.

...

The basic fair-use calculation--whether social benefit is greater than private loss--is framed in law with deliberate generality. Fair use is always a case-by-case decision... " - Reclaiming Fair Use: How to Put Balance Back in Copyright 

Please see the links below to more information on this topic.