So you are hiring a photographer to do some work for you and he/she mentions licensing. What is licensing, why do I have to deal with it and wouldn't it be easier if we just forgot the whole thing and you just give me the pictures?
Well, the short answer is that there are countless way to use and abuse a photograph that you might never imagine in a 100 years, but U.S. Copyright law is there to protect the artwork's creator when things get complicated.
Okay, so how do things get complicated?
Let's imagine you made a lovely painting of your dog. You show your painting at the state fair and it sells for the princely sum of $20. You hear a couple of years later that the painting is hanging over the mantel at the new owner's house, they love it and enjoy it everyday.
Now, what if you heard that the same couple, took a photo of your painting and shopped it around to the dog food companies, landing a big contract. They licensed your work to be used on dog food bags for 5 million dollars. Well, luckily for you that would be illegal, because you own the "intellectual property" of that painting. Even though you no longer own the physical painting. That is because the artist always owns the copyright to his or her own images. The couple could burn the actual painting or throw it away because they own it, but they cannot transfer the copyright because it was never theirs to sell.
Usually the dog food company would know better than to use an image that they don't have the rights to use. So, let's say the dog food company calls you up and wants to use your image, they want a very limited run of dog food bags and offer $500. Then, after you agree to the terms they decide to use your image for all of their products, a national ad campaign, billboards and every single dog food bag they make. They also decide that they already paid you so there will be no additional payment. Again, luckily for you, the dog food company didn't buy the copyright. They simply paid for a usage license specific to their needs. If the company decided to use your image on a big campaign then you would license your image based on how much use the image will get.
So what did we learn? First, the artist keeps the copyright for their creative work, and as such, the artist can go on to sell prints or license that very same image. Second, if you buy an image there is no transfer of copyright implied, so you can't share it with other businesses because it is not yours to give. Third, licensing is how you go about getting images for use in advertising, and the licensing is tailored to the way the image will be used.
So who wins when images are licensed for use? Everyone, the current system insures that images cannot be exploited by a third party, the artist gets paid for their work and the client pays only for what they need.