I spend a fair amount of my time reading fanfiction. The typical response upon hearing this is to ask what fanfiction is, so with that in mind, I figure I can talk about it on my new blog and thereby forever dispel the dark fog of ignorance surrounding fanfiction. You're welcome, myriad peoples of the world. Just remember: you all owe me for this.
The short version is that fanfiction is fiction written by fans of a work rather than the original creator. Almost all of it sucks because there is no quality control, but some of it doesn't and if you know how to find the good stuff it's awesome. The rest of this post is the long version. There are a couple of links to good stories buried toward the bottom, like prizes in a cereal box.
The definition of fanfiction gets a little murky when you look at long-running comics that are written by people other than the original author, but for a quick definition it works. It is usually published online, and nobody makes money on it if they don't want to risk getting sued for copyright infringement. The legal status of fanfiction isn't quite certain, since nobody wants to take an author they like to court if they get a Cease and Desist order from them. The general idea is that it's a transformative work and thus falls under Fair Use, but this hasn't really been established with an actual court case yet as far as I know. Nobody's really in a rush to find out, and as long as you don't try to make any money off of it most writers don't care either.
Modern fanfiction mostly got started with the Star Trek fan-magazine Spockanalia, but fanfiction (as fiction written by people other than the original authors) is a very old idea. The stories of King Arthur spanned about a thousand years, and a lot of the stuff that we consider to be cornerstones of the story (questing for the Holy Grail, the round table, etc) didn't show up until hundreds of years later. The earliest accounts are 5th-6th century stuff, and the version of the story that we're most familiar with was written by Sir Thomas Malory and published in 1485. This is basically what fanfiction does; it takes existing stories or characters and expounds upon them. Tall tales made up about folk heroes are something of a predecessor.
The thing to keep in mind about fanfiction is that it's self published, which means the quality ranges from "professional quality" to "absolutely the worst garbage ever written." Sturgeon's Law states that 90% of everything is crap, and this seems rather a conservative estimate when it comes to fanfiction. If you go to a site like fanfiction.net and start randomly clicking on stories to read, it's a lot like going outside, picking things up off of the ground, and putting them in your mouth in the hope that not only will they be food of some sort, but actually taste good as well. A more informed approach is needed. This is because fanfiction writers typically do not write for a living (although some do), and many don't even seem to proofread their work. A professionally published book will have an editor, and a publisher who has to sign off on it before it gets published. Fanfiction has no such requirement.
Not all fanfiction is horrible, though. Some writers who actually have an interest in quality will form writing circles and help out with reviewing, editing, and offering comments and criticism of each other's work before it gets posted for a wider audience. I help out in this capacity, although I don't really write any fanfiction myself. The trick to finding good fanfiction is to go off of the recommendations of someone you trust, and once you find an author you enjoy, see what else they have written. I've actually read original fiction simply because I wanted to understand the background of a work of fanfiction that came highly recommended. It's not unusual for such a work to be far better than the original that inspired it in the first place.
Another thing to know about fanfiction is that there is a ton of it. Fanfiction.net hosts over six hundred thousand different Harry Potter stories. That's the biggest fandom out there, but it should give you an idea of how much writing people are doing. Stories vary in length from a just a paragraph or two for a single scene, to being longer than the entire original series of books. Some of the longest fanfiction is significantly longer than anything on Wikipedia's list of longest novels in the English language. Probably my favorite fanfic is Kyon: Big Damn Hero, set after book eight of the novel series that was kicked off by "Suzumiya Haruhi no Yūutsu." It's roughly equal in word count to the English version of War and Peace, and it's still not finished yet.
Stories also might not even be in the same genre as the original. Using the Harry Potter example (since that's a series pretty much everybody knows), an example of this would be Oh God Not Again, which is a comedy wherein a magical artifact (artefact, since it's in Britain?) sends Harry back in time to when he was eleven and he gets another shot at everything. I really enjoyed it. Other writers will simply turn every story they can think of into a poorly written trashy romance novel. This goes back to the importance of finding good recommendations instead of just reading stories at random.
I suppose that's enough writing for now. I have more fanfiction to read.