Nope, you're not missing anything. The problem with fair use is that there is no "definition" there is only a principle, which is applied somewhat irregularly. Parodies intended as commentary or criticism of the actual work or a public figure are more on the protected end, but as a work moves more in to a commercial product or advertising for an unrelated product, it's less protected. But there are exceptions aplenty. Suffice to say that if you are selling a product that itself is a parody or with a parody to advertise, you are probably going to be sued and you may or may not win.
Now as for this settlement, I think it's a great solution - it had teeth and is a substantial amount of money, but as it's only a portion of profits up to a million, it doesn't really impact the companies growth. All around, a very fair settlement. The ad was awesome, but it was infringing, and this is the right solution.