Like others have said, there's some very good fanfics out there. It's just a matter of finding them. Checking reviews help a bit in that respect. I can't say I "read" fanfiction regularly, but once in a while when I'm bored I might try to look one up. As a Star Wars and KotOR fan, I liked to sift through kotorfanmedia.com, which unfortunately went down for no reason last month. There was some good stuff there that easily beat published Star Wars novels (not that this is such a big feat, but still).
What I generally like in fanfiction are people who write stories for their own new characters but in an existing setting. Kind of like what Baby Tea said: using existing characters is bad, using the setting and referring to existing pieces of work can be good. Ultimately, it all comes down to the setting for me. I want to read a given fanfiction because I enjoy the setting and want to read another story set in it.
As for writing fanfiction, I never posted anything myself; though I've scribbled down some short stories of my own a few times out of boredom. Since English isn't my mother tongue, I find that some practice never hurts.