hypothetically, if i can 3d print KatieP7 fairy figurines to sell at craft fairs, is that okay?

No, it is not okay. (I am not an attorney.)

As I interpret it, from the EULA for PPro 2012,

"...You will not use, copy, modify, derive, distribute, transfer or sublicense the Restricted Content, the Unrestricted Content, or the Other Content or any copy, modification, derivation, or portion thereof, in whole or in part via any means or for any purpose whatsoever except as expressly permitted in this EULA or the Documentation...."

The Kate figure mesh qualifies as "Restricted Content." Any derivative of that which includes the "original mesh" in any way (see above) that is not directly allowed and provided for by the program would not be directly authorized by the EULA. So... "No, you can not 3D print Kate 2, or derivatives, without separate licensing saying that you can from Smith Micro, the copyright owners."

Examples of licensing can be found in Renderosity's own licensing agreements, located around here, somewhere. For 3D printing, you would have to pay a royalty for each figure that was 3D printed at the time of the printing, NOT just at the time of sale. So, for every figure you printed, whether you ultimately sold it or not, you would have to pay a licensing fee, even if your entire inventory ended up in a landfill.

You should contact Smith Micro for clarification and instructions on how to apply for specific licensing which would allow you to sell and distribute figures printed using the copyrighted mesh, even if it is a derivative (morph) or contains partially original content that you created. (However, if it contains entirely original content, you wouldn't have to do anything like that, since you would own the copyright to it as the artist who produced it.)

"Water Tight" means that it is an entirely "closed mesh" with one, and only one, contiguous surface throughout. Also, that surface can not bisect itself, as far as I know. Typically, you will find breaks in the mesh at the eyes and mouth. You will have to check the mesh using a 3D program and make alterations as necessary to close these holes and to be sure groups are properly joined into one group.