As an author of FanFiction I've always been curious about the line that is drawn on this subject, about whether or not what we're doing is right. About the authors that forbid fanfiction of their characters, or authors that even send out lawyers to stop you, or the authors that even take an active interest in what you're writing.
The best way to explain fanfiction to someone that has never seen or heard of it before is this: writers who go see movies, or watch tv shows and they like the characters. They sit there and think and think and one day they write a story featuring the characters. These stories range from Gen(General), which is acceptable to all audiences, to Slash and Femslash, which are written about homosexual couples. Most of what a fanfiction writer writes is based off of subtext; long glances, vague lines, places where we can imagine a hidden meaning. The Lost Boys was quite famous for the subtext that implied a sexual relationship between the two brothers in the movie.
Most fanfiction features a header which lists Author, Title, Email Address, and almost always, a Disclaimer. The disclaimer is the part that gives you the right to do what you're doing, technically.
It disclaims, something along the lines of, "Forever Knight, characters, situations, and so forth, do not belong to me. They belong to Rysher Entertainment. I am not making money off of this.". This is a very basic disclaimer, though, depending on the author they can get as long and wordy as you like, even making jokes. I used to have a disclaimer worded exactly like the 'Rules of Fight Club'. Basically you give up the rights to the characters, and tell everyone where the characters really came from.
Even with this bit of legalism some authors dislike the idea of their characters being toyed with. Anne Rice is quite famous for this, and her website should still have that message archived.
Most recently is the whole 'Harry Potter Porn' issue. All of the adult level reading material is clearly labeled, and usually hidden behind some sort of warning page, that requires you to click an agreement that you are old enough and legal to read it. Having been surfing recently I've found that many websites, hosting Harry Potter have changed the spelling to something along the lines of 'H*rry P*tter', probably in an attempt to hide from lawyers and J. K. Rowling.
I've always felt that fanfiction was a form of flattery, an author showing their appreciation of your character building skills by using them in their own work, with the use of a disclaimer. Without the use of the disclaimer the work is nothing more than stealing.
The question is, is fanfiction a fan's right? If something is produced as mass media, shown on large screens all over the world to thousands of audiences, can someone really say 'no. i forbid you to do that with the thing that i mass produced.'. Or is it up to the copyright holders to tell each and everyone of us what we can do, especially when we're not making a profit off our work?
And yes, there is a lot of bad fanfiction out there. More often than not what is hosted on fanfiction.net is pure garbage, but every once in a while you find something that actually works well. Most of what you're seeing is practice; amature writers are practicing characterization. They learn a character, they learn how the person acts, and walks, and talks and by the time they've written their first fifty pieces of utter trash they know what they are doing. They put their bad work up, get it critiqued, and learn what to fix. Writing is a learning process. In fact, as I remember, Susan Garrett, an author who writes official novels for many tv shows such as Buffy, Forever Knight, and possibly Highlander as well, was on a fanfiction mailing list with me for Forever Knight. She eventually became good enough to get the attention of the real writers, who brought her in to join them.
As for pairings none of us care for; well, it can't all be sunshine all the time. I'm sure there is something out there that you will like, and if not, so what? Someone else might like it, and beyond that its all a matter of free speech. Someone once said, 'The only way to make sure people you agree with can speak is to support the rights of people you don't agree with.'