Creating fanart of copyrighted characters is perfectly legal so long it is done as means of self promotion for the artist and posted freely online for everyone to see. Furthermore, commissioning an artist to draw such characters is also valid because the artist is not claiming ownership of said character nor producing physical merchandizing for sale with said intellectual property. It is a private transaction were one party is hiring another person's talent and time to create a new, original piece of fan art. If said artist were to produce a print with his art but it featured a copyrighted character then that would enter a sort of gray legal area, as long as said print is limited to private use and not produced in large numbers, then the copyright holder could let it slide if the profit of the material is not even worth pursuing in court.
Actually, the legality of fan art is highly questionable. The only reason it isn't pursued more often is that it is rather stupid for a company to prosecute copyright infringement for something that isn't even costing them any money, and in the process, infuriates their most dedicated fans, that is, the very people who promote their actual IP and buy tons of it.
Fan art, like any other derivative work, has to pass the fair use test to be noninfringing, and that is whether it is commercial or it isn't. Whether a derivative work is commercial is only directly relevant to one of the four factors of the fair use test. The test balances these: "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."
http://fairuse.stanford.edu/overview/fair-use/four-factors/#sthash.iLQc2TaP.dpuf
Many fan works are, definitely, transformative enough, that is, they have enough original content, that they wouldn't fail on that part, but because fair use is a multi-factor balancing test, commercial exploitation of them would make it more likely that they wouldn't pass.
There isn't a bright line rule on it, though, and a minimally transformative "fan art" piece could easily be infringing with or without commercial motive.
It's more a matter of letting it slide than that there is any explicit protection of fan art.
In this case, with stuff grabbed from Google Images being used in a shopfront sign (a very bad practice by the way), both the original owners of Crash Bandicoot and the fan art guy have a legitimate legal claim against whoever made that sign and is using it for commercial purposes.
I just think it's kind of douchey actually to do it while being on somewhat questionable legal ground yourself. The damages in a copyright claim are generally monetary. That is, this guy would be claiming he would otherwise be making money off someone else's IP had it not been diverted into the pockets of this sign guy.
It's very similar to the Blue Balled Bear's whining about people using his own shitty art to criticize him and complaining about it being "stolen."
?
