I'm in Texas, a long way from both DL and WDW, and there are several groups here who provide princesses for events. Most of them are very careful not to ever say Disney (even those who have worked for Disney, or maybe particularly those who have worked for Disney

,) and there is a huge range of talent and professionalism. The best ones use the names for Snow White, Cinderella, Rapunzel, and Alice (all of whom have non Disney sources) but then, as others have mentioned, use Snow Queen, Norwegian Princess, Mermaid Princess, Amulet Princess, etc, and are very careful to mention the historical/literary origins of most of the stories. And yes, some misspell Disney versions of character names on their website, but I do think that would be less defensible if Disney did decide to go after them. The princesses dress in Disney replica gowns (some more accurate than others) and certainly don't correct girls who call them by their Disney names.
We actually might have gone to parties with some of them, and might have hired one of them to come for DD3's birthday.

Some are simply very attractive young people who do high school or college theater and who have very nice costumes. At the other extreme, you get a few are ex-Disney and have flawless costumes, and you would never know you were not dealing with a princess at WDW. They don't come cheap, but, for example, you get Rapunzel dancing around your living room with your daughter and her friends. We go to WDW and DL and spend money on official character meals annually, but yes, we may have supplemented our DD's princess obsession with the local offerings.
I don't know if Disney would have luck prosecuting most of these companies, since many of them are pretty careful. Disney also sells a lot of merchandise associated with these parties. For our princess party, we bought plates, decorations, dolls, dresses, accessories, and lots of little stuff for gift bags. I suspect Disney benefits so much from the princess popularity that they are willing to overlook the borderline legal (and decidedly illegal) use of their characters for kid parties around the world.
Anyway, using official Disney photos definitely isn't legal, but many of the groups manage to stay on the legal side.