Based on what I read about it before I actually saw it in action, I had guessed that they were showing the original site in a frame served from the original site with their annotations outside that frame.
(That may or may not be legal. I'm not sure if it has been settled whether or not displaying someone's page served from their site in a frame served from your site might be a violation of the public display copyright right).
However, after looking at the genius.it page that was linked in another comment for part of this very thread, and also looking at the genius.it page for my own website, that's not the case. They appear to have made a copy of the base page itself and are serving that themselves. They don't seem to copy images and stylesheets--those are still being served from the original server.
In the copy of the page they serve, they modify the links contained therein to be genius.it links. That's making a derivative work.
I don't think Genius could argue successfully that this use is fair use. They are a commercial site, and they are copying the entire page from the original site.