I have a Palit ATI Radeon HD2600 Pro and the fan has stopped working. Does this mean my graphic card is useless/not at full capacity? what could have caused it?
Relatively old graphics card usually do not implement thermal throttling very well. If the fan stopped working then in case the processor is stressed, then the power use will go up, and fried chip is a definite possibility.
The caveat here is how big your heatsink is. if what you have is something like this: (link: http://www.palit.biz/main/vgapro.php?id=104 ) then I don't think it's going to work very well. You better get another card ready.
I have personally seen HD2600 pro cards with passive cooling though. but those are big, big heat sinks with heatpipes.
The fan is to help cool your card's chips. Without the fan, the chips will get hotter than they should which will lead to errors/damage. You can get a replacement fan and everything will be fine (unless there is already heat damage). Take your card down to a local computer repair place and they will probably be able to provide you with one.
The fan probably just wore out. If the insides of a computer are not cleaned pretty regularly (once every 3-6 months) you can get quite a dust buildup. Dust bunnies and fans don't play well together.