Earlier quoted context omitted.
I think misappropriating someone else's work to make a buck is a cultural disaster, but then I work for a living and expect to get paid, so what do I know? Fair Use does exist to provide an avenue for the reuse of the work of others for criticism, parody, and the like., but straight up lifting someone else's work and using it to your own ends, even if noncommercial, is wrong.
Explain why it's wrong when there's no money involved (e.g. fan-fiction and similar works).
Even if there's no money involved that can still damage the market for the work it derives from. It's one thing if the derivative work consists of original characters in the same setting, or existing characters but in a what-if scenario, but as soon as you start trying to write derivative works in the same vein as the original then you're damaging the original author's ability to market his existing work, and to continue that work himself. You are, in a very real sense, taking something that isn't yours.