By definition a fraud: "Deception deliberately practiced with a view to gaining an unlawful or unfair advantage; artifice by which the right or interest of another is injured; injurious stratagem; deceit; trick." (Webster's Revised Unabridged Dictionary)
A fake: "To manipulate fraudulently, so as to make an object appear better or other than it really is." (Webster's Revised Unabridged Dictionary)
Frauds and fakes are made anywhere fossils are found, and perpetrated by people in all walks of life. In the case of China, where the majority of modern fakes come from, most fake fossils are produced by poor farmers. Other major modern fossil fakes are from Morocco, perpetrated by lower-middle class people (the lower classes are involved with finding real fossils). Other famous frauds especially earlier ones come from Europe or America and were often done by the wealthier class who were the only ones involved with palaeontology.
There are many reasons why fakes are made. In China, the poor farmers are selling the fossils to make money, the rarer the fossil the more money they make. It is easier to create/fake "rare fossils" to make more money. In Morocco the fossil fraudsters are making the fakes for two reasons, first most of the original fossils have already been found, and it is easier to create a fake than find a real one, and secondly it is cheaper to fake one than find a fossil. Other frauds are perpetrated for fame (Piltdown man), or for revenge (Lithographiae Wirceburgensis).
Any fossil is susceptible to being faked. It is more difficult to fake large fossils, but this does not stop determined people. From China there have been fakes of everything from birds, fish, mammals, dinosaurs, icthyosaurs, Keichosaurus hui to dinosaur eggs. Nearly all fossils that come out of China are fakes, real fossils have to have lots of permits to be allowed out of China. Fakes from Morocco are often trilobites, but other marine fossils are also faked. Fossil amber is becoming a more common fake and unless it comes out of a few sites (Dominican Republic and a few others) it is likely fake. Mammal skulls from the Pleistocene of many countries are faked. Many more fossils have been faked and with time most will be.
Depending on the fossil there are various ways of producing fakes. The vertebrate fossils out of China are usually faked using parts of real fossils or completely faked. If using parts of real fossils, the incomplete parts/sections are fixed using either pre-existing fossils (e.g. Archaeoraptor), or using modern bones dyed the correct colour. The other method uses no real fossil parts and are either completely carved into the the matrix or a resin cast is put on the matrix and painted to match the colour, or most obviously sometimes just the shape is painted onto the matrix. Fossil trilobites are faked similarly to vertebrates, either using pre-existing parts and putting them together, or complete fakes using moulds. Amber can be faked in two ways, a more recent form of tree resin called copal is sold as amber, or a hole is drilled into existed amber and a recent inclusion is places inside and the hole is filled with melted copal or modern resin. In the case of mammal skulls often many recent skulls have been dyed to match fossil colours. For more details on each see the link.
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A good link to many photos and ways of testing for fake fossils that are often seen by amateur collectors.
Paleodirect fake fossils