When humans enter Inkenpaint City (the town Chappy and his friends live in), they need to undergo a transformation to become animated.

And when the humans in Chappy's world do become animated, they are rotoscoped, similar in appearance to all the characters in Ralph Bakshi's film American Pop.

Why? It's because if they were in their human form, they would stand out too much, and look unnatural. They need to blend in.