The vendors are usually, from what I've seen, at the edge of the sidewalk, by (or on) the street. They're well out of the way. There does indeed seem to be chaos in New York, but it's sort of an orderly chaos. I've only visited, so maybe I don't have the most expertise, but the city is like a giant clock with loads of gears. It looks like a mess, but everything flows together mechanically, or so it seems.
And yes, street vending is legal in other places in the US. You just need a license for it like in New York, and then of course other regulations (food safety, location, legality of merch, etc) apply.
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