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It's pretty simple. These aren't "real" judges, although a lot of them have judicial experience. Technically they are arbitrators who review civil cases that are filed (usually in CA or NY) that are dismissed. The decisions are binding, and each party to the case is paid a stipend to appear. Any judgement against them is typically deducted from that stipend.
The "judges" are not and can not be sitting judges. They would have to resign from the bench in order to appear on TV, so they are not getting paid by the taxpayers in whatever venue. It would be a huge conflict of interest for a sitting judge to appear on a TV show to render legal opinions.
Is it fair to both parties? I'd argue that it is because of the transparency the show itself provides. If they don't act fairly, the viewing public is going to figure that out pretty quickly and not want to appear.
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"They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety." - B. Franklin
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"We have met the enemy and he is us." - Pogo
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