If you copy your own VCD and use it at home, nobody is going to bother or even know about it. If you shoot the latest blockbuster with your HDV cam from the screen at Golden Village then you might get into serious trouble.
VCDs are quite easy to work with. The video files on the disc have a .dat extension, just copy to your hard drive. You can often just rename the .dat as .mpg and proceed. Download TMPEGENC which is free, and use its MPEG tools to trim the mpg file to leave just the section you want to keep, and then save it. The advantage of using this software is that it does not recompress the video file so you maintain the original quality of the VCD.
Most video editing programmes will let you add graphics and cartoons to video, but if you want to actually create the graphics and cartoons, that's a much bigger subject.