The copyright/TOS issues that Pinterest was/is facing got me thinking about the viability of my own startup considering all the content for my site is socially-generated and requires copyright oversight. Is the issue with copyright that I am simply making a profit from having the content on my site or that I am profitting from displaying the copyrighted content?
This is a ypical fallacy. Laws do not care whether you make money or not, SHOWING COPYRIGHTED MATERIAL WITHOUT PERMISSION IS A VIOLATION OF THE LAW. THere is no provision for "Oh, I do no make money with it".
Neither nor. The issue is that you SHOW the content - profitting or not is irrelevant. You have no right to show it. Even if you never ask for moeny it is a violation. Even i the site has no ads anywhere. SHOWING is the problem.
The key issue with Pinterest is that they are copying works to their servers and then later serving up those files to others. The issue is the copying and storage of files that they do not have the rights to copy.
For an in depth discussion by lawyers of the legal issues in the case of Pinterest you may want to watch: this WEEK in LAW » Episode 154: Persons Of Pinterest
You do not state if you are copying and storing on your server files that you have not been given the right to copy; if you do make such copies, then you are most likely violating the copyright laws. It has nothing to do with ads or making money (although that could increase the damages that you would be liable for in court). It is the act of copying something that you have not been given the right to copy.
Even if your website were not a business (a charity for example), never showed an ad, and never made a penny, you could still be guilty of a copyright violation if you have a file on your server that was created by someone else and they did not grant you the right to make a copy of that file.
In the case of files uploaded by end users (YouTube for example), where you are not involved in making the copy (other than storing the file), and have no prior knowledge that the file is not in the public domain; you must be prepared to promptly remove the file(s) from your server if you are notified that they are infringing on a copyright. Generally you will receive such notice in the form of a DCMA takedown notice.