Q. What is a "transformative use" under Fair Use?

From Copyright.gov:

Transformative uses are those that add something new, with a further purpose or different character, and do not substitute for the original use of the work.

Transformative Uses are in the realm of the first factor of Fair Use. 

From ATLA: 

Analysis of this factor frequently turns on a determination of whether a proposed use is transformative (e.g., work adapted for a new purpose or unexpected audience) as opposed to mirror-image copying. In this case, the court repeatedly found in favor of GSU because all uses were exclusively nonprofit and educational or for the sole purpose of teaching students in classes at a nonprofit educational institution. The lack of transformative use was not dispositive.

This section of this video (starts at portion) is also highly recommended for understanding Transformative Uses:

Also of interest is this quote from the University of Minnesota Libraries:

Transformative use is a relatively new addition to fair use law, having been first raised in a Supreme Court decision in 1994. (Campbell v. Acuff-Rose Music, 510 U.S. 569 (1994.) A new work based on an old one work is transformative if it uses the source work in completely new or unexpected ways. Importantly, a work may be transformative, and thus a fair use, even when all four of the statutory factors would traditionally weigh against fair use!

Parody is one of the most clearly identified transformative uses, but any use of a source work that criticizes or comments on the source may be transformative in similar ways. Legal analysis about this kind of transformative use often engages with free speech issues, and unusual artistic techniques.

Courts have also sometimes found copies made as part of the production of new technologies to be transformative uses. One very concrete example has to do with image search engines: search companies make copies of images to make them searchable, and show those copies to people as part of the search results. Courts found that small thumbnail images were a transformative use because the copies were being made for the transformative purpose of search indexing, rather than simple viewing.

A recent case that contextualizes transformativeness is Warhol Foundation v. Goldsmith (from here): 

While we thought this case offered a good opportunity for the Court to affirm a more nuanced approach to transformative use, we much prefer the Supreme Court’s approach to the Second Circuit’s decision, and applaud the Court on confining its ruling to the narrow question at issue. The holding does not, in our view, radically alter the doctrine of fair use or disrupt a bulk of established case law. Moreover, some aspects of arguments we made in our brief—such as the notion that transformativeness is a matter of degree, not a binary—are present in the Court’s decision. This is a good thing, in our view, as it will allow for more nuanced consideration of a use’s character and purpose, and stands in contrast to the Second Circuit’s all or nothing view of transformativeness. 

Find more information about Transformative Uses here on the TCC Library Copyright guide.