Copyright basics:Almost everything that was published in the United States before 1923 is in the public domain in the United States. "Public Domain" means the copyright is no longer owned by anyone, (it's owned by the public), and thus you can do just about anything with the images, including sell them for profit. This is why, in part, so many of the images that you may see for sale are "vintage," because this is the easiest category to find items that you can sell.
From 1923 to 1978, a published document, such as a book, was required to have a copyright notice in order to be copyrighted (with a few exceptions). This is often why you'll see digital items from the 1940s or 1950s for sale such as seed packets or greeting cards that did not tend to have copyright symbols on them. However, the images and the published words are copyrighted separately. So you have to research the image itself even if the book is in the public domain. This makes sense if you think about your own work of art. Let's say you make a painting of a tree and another esty seller wants to make pocket mirrors from your painting. You set up an agreement that allows her to make and sell these mirrors, giving you a portion of each sale. You, however, retain your copyright to the original image that you created. Thus, the pocket mirror and the original tree image have separate copyrights and might have different copyright status.
An item from 1923 to 1978 may also have fallen into the public domain if it was originally published with a copyright notice but the copyright was not renewed. Images from this time period are much more difficult to confirm. My 1950s pin-up girls took 6 months to research, and that does not even include the time it took to make the pictures into sheets.
From 1978 on, the majority of published material is still copyrighted. So unless I've taken the photographs myself, I tend to avoid the newer images.
It's not quite as cut-and-dry as it seems above, which is why I can take days if not weeks to determine the status of one image, but these general boundaries are a great starting point. The U.S. government has a thorough PDF that outlines many of the rules and the exceptions to the rule.
Terms of Usage
The other aspect to consider is "terms of usage." This basically means that even if a piece of art or illustration is in the public domain, such as the Mona Lisa, the organization that owns the art may limit what you can do with it. Last summer, for example, I visited the Minneapolis Institute of Art. They allow photographs of their entire collection, so I was happily taking photos of this amazing, ancient collection of tapestries. Upon contacting them to confirm that I can use these images, however, I learned that while I may take photographs, I may not use these photos for commercial purposes. Basically, by entering the building, I agree to their terms of usage which says what I may or may not do once I enter the building. If I do not agree to abide by these terms, I cannot enter the building.
This is the same concept that works with digital images and many websites. A museum may have images of their art on their website, even art that is in the public domain. But this does not mean that you can use these images however you want. If you look at the bottom of the webpage you will often see a "terms of usage" that spells out what you can and cannot do on that website.
Similarly, when you buy an image or image collection from someone, you are agreeing to their terms of usage.
One additional concept that comes in handy in understanding digital images is "derivative works." These are brand new works that are made up of many other images and are thus able to be copyrighted. Collage is the most common derivative work. If you take, for example, several public domain images and create a new collage work, you may copyright your new work. This also works for collage sheets, where I've taken dozens of different public domain images and made them into a new work that I thus copyright.
Derivative works can be tricky however if you attempt to make something like a collage out of copyrighted material. I've often heard people say that as long as they are using an original item instead of a copy, they can do whatever they want to with it. The theory is that I can take an ad from 2008 or a children's book from the 1950s and make it into something else as long as I use the original. In my research this is often not true. According to title 17 of U.S. copyright code, only the owner of the copyright may grant permission "to prepare derivative works based upon the work." FunnyStrange has a series of excellent articles on collage and copyright that explore these ideas further.
But wait there's more
Finally, there's several other concepts that can come into play: trademarks, logos, and "right of publicity." So no, even if a Coca Cola ad was published before 1923 in the U.S., you may not be able to use it if it contains the Coca Cola symbol or trademark. Same for that photograph that you personally took of Paris Hilton (or even people who are no longer alive like Elvis or Marilyn Monroe). Without their permission or the permission of their families, you may not be able to use their likeness. And to complicate matters, rights of publicity often vary from state to state. In the case of Marilyn Monroe, there's debate over which state's laws apply, and thus whether her likeness is able to be used freely or not.
After all of this you may start to wonder how anyone can make anything at all! Needless to say, many, many people do not follow these rules, including many on etsy. But if you're reading this, you're probably interested in doing things "the right way." Hopefully these basic guidelines can give you a good start to understanding copyrights and how they relate to collage sheets and crafting.