"Haruhi" was an animation that was broadcasted in smaller TV stations, not with national TV stations. But people loved it so much- and people who were able to watch the anime started uploading the anime clips to YouTube. (Completely illegal.)
And then, there were people who started creating English subtitled versions (called fansubs) and those fansubs had enormous advertisement effect. When Kadokawa started selling English DVD of Haruhi, it sold 60,000 copies just in North America. (Sold 80,000 copies in Japan)
Kadokawa learned from this fact, and decided to have alliance with YouTube as follows:
1) Kadokawa created a "Kadokawa Channel" on YouTube, and will upload video contents there.
2) Kadokawa will give "reference movies" to youTube, and if there are any similar videos uploaded, uploader will get a warning, and Kadokawa will get an alert. (90% accuracy according to Kadokawa)
3) Kadokawa can decide either to "delete" that video, "leave as it is" or "officialize" that video
-officialize meaning they will put a logo that the video is accepted by Kadokawa, and put ads on it.
4) Kadokawa might offer works such as movie creation of scenario writing- to the creators found on YouTube.
Why did this happen?
It is based on a decision made by Tsuguhiko Kadokawa who is the chairman of Kadokawa Group Holdings. According to various articles, he saw various MAD animes created by users and uploaded on YouTube, Nico Nico Douga, etc.
Total views of Kadokawa's copyright infringement videos amounted 100 million views.
He felt that merely telling them that it is illegal and turning them down isn't just right. When Comic Market (Doujinshi market) started, most publishers thought of them as "pirates" and they're bad. Kadokawa thought of them as fans and a new place that creates new creators. The same thing is happening here- this time in the video industry. He wanted to find out a way to approve them.
"We shouldn't turn down the creators, nor should we diminish the motivations of those creators by not paying for the contents/creators. Japan should make a new system where it is benefitial for all of the creators, distributers and content holders."
So here it is. Kadokawa authorized MAD videos.
"Kadokawa" on the bottom right is the proof of Kadokawa authorizing.
Following are various MAD animes that were thought to be illegal until the minute they got the Kadokawa-logo.
This is the famous Haruhi Dance video (right and left is opposite so that people can practice the dance)
Haruhi Dance from all over the world.
Haruhi pictures collaged into a video.
Haruhi MAD with Macross song (another animation's song)
Haruhi * Rakista MAD anime (another animation)
Tokiwo Kakeru Shoujo MAD with Spitz song (non-anime song)