Illustration is distinct from graphic design, and often has more in common with fine arts. The so called golden age of illustration ended almost a century ago, with photography being increasingly used instead, and the emergence of graphic design as a recognized medium itself.
Adrian Shaughnessy makes some observations about the state of illustration in this article in designobserver. He notes that illustration has been eclipsed by graphic design because, he says, it is not verbal enough - it cannot communicate the call to action required in so many commercial settings such as advertising and websites. But certainly, many examples of illustration can be seen in print today, especially in publishing. Sometimes a particular story is to difficult to tell in photographs.
In this printmag article, Patrick McNeil shows how animated, interactive artworks, some of them incorporating text, may be the future of illustration online. There are some stunning examples shown. The result is almost a fusion of graphic design, illustration and animation.
No matter how prevalent photography is, illustration will always have an appeal. Whether art students are picking up a brush and learing the "wet" media, or going straight to Photoshop, illustration is not going away any time soon.