I typically visualize the characters in their anime forms, but their surroundings as real life. However, in my writing, I try to make the characters real as well, to add a more personal feeling to the fanfic. It helps to be able to see the characters as people you know, or at least have heard of from real life. Many fanfics even make references to real life characters or places. My fanifc, in fact, has done real places, and will have a reference to a certain person as well. The key is to make it the way the reader likes it. A very skilled writer is able to allow the reader some flexibility as to how he or she visualizes things. It depends on your audience, your fic style and your writing style and capabilities. Okay, I think I've droned on far too long once again, so I'll leave it at that.