How does fatigue work?
Fatigue can affect all players, starting pitchers, bullpen and even position players. Fatigue is based on projected stats vs actual stats. Each player also has a built-in cushion of 10% beyond his actual stat totals. To view why a specific player is incurring fatigue, hover over his fatigue indicator in your Manager's Office.
For your pitching staff, fatigue may affect an individual pitcher in one of 2 ways (NOTE: both are based on pitchcounts, not IP):
Within the current game - As the game wears on, the pitcher will become increasingly fatigued, requiring some pitchers to be replaced or pinch-hit for before others.
Overuse - The fatigue monitor also evaluates the rate at which you use your pitchers from game to game. For example, if you attempt to use a pitcher with 200 actual IP in a 3 man rotation, he most likely will not have enough time to recover fully from start to start. Or if your closer throws 45 pitches the previous game, he most likely will be fatigued and need a game or two to rest. In order to fully rest him, you'd have to send him down to AAA or move to the bullpen and rested (both options are available for full-season teams ONLY). So the moral of the story is: don't overuse your pitchers or their arms might fall off (okay, not really, but they will get tired).
For position players, fatigue is based on league plate appearances. If they are on pace to play significantly more than they did in real life, then they will show signs of tiring. As they tire, their ability to hit, field and run the bases suffers. For example, if the 1985 Max Venable accummulates 110 plate appearances by the All-Star Break, he will be showing serious signs of fatigue because he only saw 146 plate appearances during the entire season in 1985. As players tire, a day off will help them climb back to full stamina. Salaries for both pitchers and position players have been adjusted to compensate for their conditioning (or lack thereof). For example, you may see two pitchers with identical numbers, except one threw 250 innings and the other threw 150 innings. The pitcher with more innings thrown will be more expensive since he won't wear down as quickly.
Also note that after your first couple of games many players may show fatigue even if they were everyday players in real life. The reason is that often times at the beginning of the season, players will rack up many plate appearances if your team scores a lot of runs or plays extra inning games. This will quickly balance out as the season progresses.
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