To take images from the web and amalgamate them into your own images or adjust for your own needs.

"I've seen that picture somewhere before, where did you photoshoplift it from."

And this is nothing new. The creation of derivative works has been going on for years. Many artists will move a representation from one medium to another (look at Andy Warhol and his Campbell's soup cans).

There is an obvious copyright issue involved in Photoshoplifting, there is a thin line between fair use and derivative work.

Section 103 of the US Copyright Act states:

The copyright in a compilation or derivative work extends only to the material contributed by the author of such work, as distinguished from the preexisting material employed in the work, and does not imply any exclusive right in the preexisting material. The copyright in such work is independent of, and does not affect or enlarge the scope, duration, ownership, or subsistence of, any copyright protection in the preexisting material.

Meaning that even in a derived (or Photoshoplifted) work, the copyright of the original piece(s) belongs to the original author (as you'd expect).

However, fair use (Section 107) states:

The fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include -

1. the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

2. the nature of the copyrighted work;

3. the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

4. the effect of the use upon the potential market for or value of the copyrighted work.

There is no doubt that Photoshoplifting goes on over the Internet everyday, and many copyright owners won't care or will be flattered to have their work incorporated into anothers. However, artists should be careful not to overstep the line.