I just copy-pasted my answer from another forum. =P Beware, long post~
Where do you begin to answer a question like this?
So many people jump to the conclusion that the world would simultaneously implode onto itself. This may not be the case, however.
One day you wake up and the world is full of Pokemon.
But which Pokemon? I guess there would be only a select few in each country due to habitat restrictions and maybe even for "variety". Look here:http://faculty.southwest.tn.edu/rburkett/ES%20%20we17.jpg
North America would more than likely be filled with Unova Pokemon just because that was the main inspiration for that region, North America (and South America to some extent). But that doesn't restrict the Unova dex just to America, depending on the Pokemon, they could exist elsewhere.
For example, Mareep could be found in NZ, Aus, Asia and North America because of farming, but Kangaskhan would only be found in locations in Australia and Africa for the vast Savannahs that would allow space for such large creatures. Dewgong and Seel would live in the Antarctic, while Zubat could be found in most caves.
Pidgey and Rattata would be almost everywhere because of this.
Johto and Kanto Pokemon would have the most diversity due to the inspiration being not as specific as Unova Pokemon. Sinnoh Pokemon would live in Northern, mountainous regions such as Russia and Canada. Hoenn Pokemon would live in continents with a broader array of environments, mainly desert climate with some forest and coastal regions, such as South America, Africa and Australia. Asia would mostly contain Pokemon from the Kanto and Johto regions, and of course, the next gen will include Europe into this picture.
There would be only one of each Legendary, of course. And all of them are most likely going to be in a deep sleep, hidden and undisturbed.
Great titans such as Kyogre and Groudon would have to be "placed" into the world with extreme caution. Legendary Pokemon with such power are not meant to be found. In the average lifetime, no human would be able to meet a legendary Pokemon, as they are just too rare.
Regigagas would be somewhere in Greece, a vast land with many ancient temples. Kyogre would be at the bottom of the Mariana Trench, whilst Groudon would slumber beneath the volcanoes of Papua New Guinea. Dialga and Palkia would be hidden on the mountains of the Antarctic, far, far away from civilization. The legendary birds would be scattered among the Pacific Islands, with Lugia somewhere nearby. An ancient tower in the middle of a forest in Asia would contain Ho Oh, whilst the Kami trio would soar the skies of the Americas. The legendary beasts would live among Japan, but in distant, hidden areas. Regirock and Registeel would live in abandoned mineral mines in Australia, while Regice waits in the North Pole. Mew would be hidden in the jungles of South America, of course. And Mewtwo would probably be in some lab within Japan.
I can't list every legendary, but you get the idea. Good luck trying to find one, as you don't have a high chance of surviving.
And if anyone were to actually find a Legendary, what would they do? The Pokemon would probably roar at you, swipe your head off, or may not even bother to wake up because you're just a puny human. Groudon is 3.5 m tall, and weighs over 950kgs. That thing is huge. It probably wouldn't even wake up in an earthquake, let alone a trainer.
If Pokemon were real, I don't think they could possess the powers that the Pokedex says it will. (This guy explains this beautifully, with amazing realistic pictures to top it off. -Dragonite- by `arvalis on deviantART )
Take Dialga for example. In the real world, it probably would NOT be able to control time. Maybe it is far from it- perhaps the jewel encrusted upon it was just thought to posses this control. Maybe when people heard it roar, it was so powerful, it was like they were being thrusted into a warp of time.
This can be used for many Pokemon's abilities. Perhaps looking into the back of a Shedinja won't exactly kill you, but it is creepy. Perhaps Alakazam doesn't have an IQ of 5000, but like a trained primate, it has the capability to learn. I could go on.
This forwards the question: how would a Pokemon "attack"? Not everything the Pokedex says is a lie. If a Pokemon were to breathe fire, it would probably be a gas or liquid that they would exhaust and light up with a spark, like a flamethrower. Electric Pokemon would cause static within their fleece or fur. I still have to get my head around Pokemon like Magnemite and how they would exist. Many moves would probably be non-existent, such as Zap Cannon or the such.
An "attack" from each Pokemon would be unique in themselves, like a Pikachu would rub its cheeks against an opponent to release electrical charges, or static. A Patrat would bite or scratch an opponent, whilst a Rhyhorn would charge.
Teaching your Pokemon these moves would be like teaching your dog how to do tricks (very difficult and time consuming. It is why I think dog trainers would be good Pokemon trainers), and like universal words "Sit" and "Shake", these combat techniques have been shortened to "Tackle" and "Bite". Move sets would be like Gen 1 all over again. Very, very bland. But if you're a good trainer, you can teach your Pokemon how to use moves such as Charge Beam, Fury Attack or Flame Charge just by alternating uses of their abilities. Or just improvising.
Most Water moves would probably only work in the water. Water Pulse is a good example, as it may just be a pulse that the Pokemon emits and creates a small force of water. Moves like Water Gun or Bubble might come from a sack inside the Pokemon's insides, like an ink sac from an octopus.
Like the artist previously mentioned, I also have the "belief" that Pokemon evolution is gradual. I've always thought that this would be the case in real life. He explains that when an Eevee evolves into an Espeon, it would begin to lose its fur. The process of evolution would be unique to each Pokemon, but it is categorized into a few methods. Pokemon that would evolve by leveling up would be through training the Pokemon for many days, months, maybe even years. It would be easy to train a Wurmple, but not as easy for a Hydregion. Only incredibly skilled people can evolve and train Pokemon as rare as Deino or Dratini, or people who put in enough effort. Pokemon that evolve by friendship would need considerable amount of bonding. Like how a baby bird develops into a mature bird that is able to fly. The difference between evolving through friendship and leveling is that Pokemon that evolve through friendship don't need to be trained.
Stone and item evolution would be the easiest, as the Pokemon may only need to be around such item for a period amount of time before the process begins. Perhaps the Fire Stone is merely a piece of molten rock that your Pokemon can sleep next to, or to evolve a Growlithe, it's diet must contain pieces of charcoal. Leaf Stone could be a mossy rock that is still moist from the forest that is was found. A plant-like Pokemon such as Weepinbell that evolve via Leaf stone would need these stones for their moss that contain specific nutrients that help them evolve. A Moonstone would be a moon rock, a Sunstone might just be a jewel, like its real life counterpart, the Sunstone. Dawn, Dusk and Shiny stones may very well be jewels as well. A Thunder Stone may be an electrically charged ore, like the above artist stated. (I could not think of any better theory than that one)
Pokemon that would've evolved through trading in the video games might have to evolve from drastically changed habitats, it may be a sign of stress that the Pokemon feels, such as when a cat forms anxiety when it has moved locations. A Machoke gaining extra arms may be a deformity caused by this, but if treated well, it can be used for combat.
I personally do not like how the anime portrays how Pokemon would behave, especially with their vocals. Pokemon would not be blabbering their name in speech. Like the animal they were based off, their voice box would mutter a squeak or a roar.
Anyway, that's enough about Pokemon generally. Back to answering the question.
In the first few days, Pokeballs probably wouldn't be available for purchase. For the sake of this theory, lets say that the super rich Game Freak had an underground warehouse lab that was the size of a football field with genius scientists that used technology and science to genetically mutate and clone animals into "Pocket Monsters". (Like how they brought an ancient frog to life or how they cloned sheep) They would look similar, but not a direct replicate of a Pokemon.
It may or may not be possible. It also sounds ridiculous.
Pokeballs would be the cheapest out of the rest, around 100 Aus dollars per Pokeball. Perhaps as time goes by, Pokeballs would become cheaper. But GF needs to make profit, so even an ordinary Pokeball would be hella expensive. Imagine buying an Ultra Ball. It would be as expensive as buying a new phone. They would be available at your local Newsagent.
I'm not even going to bother explaining how Pokeballs would work. Something about atom reconstructing or something.
There would probably be some Pokedex app available with updates on how to look after your Pokemon. Maybe you could even "scan" a Pokemon by taking a picture of it.
Pokemon Centers might open up as a small hospital, where veterans deal with your Pokemon's illnesses and needs.
Kids would go crazy. Adults, not so much. But every Pokefan out there might've just wet themselves.
GF would probably be laughing. Just like how the games portrayed it, there would probably be hippie protests about Pokemon abuse, animal testing abuse, upsetting the natural order of the world, and of course, protests about keeping Pokemon as pets and how they should be free (Plasma). Of course, there would be underground activities to gain power or money using Pokemon by abusing them or selling rare Pokemon for money (by stealing them off kids, of course) (Rocket). Or maybe people will start using this chance to build up a military, either to fight enemy countries or to fight the government themselves (Magma/Aqua).
It would be a rat race to find the rarest and most powerful Pokemon, either to protect them, study them or utilize their abilities.
These movements may take a while to kick in, but they would be definitely possible.
Rules would be set to prevent this from happening. Like a Driver's License where you are only allowed to drive if you have one or to own a certain reptile you'll need a Reptile License , a Trainer's License can only be obtained at the age of 10 and above, where you are legally allowed to own a Pokemon. The test may include a criminal history check up and a common knowledge test (mainly about how to treat animals/Pokemon) so that animal abusers cannot be allowed to own a Pokemon under the law.
But that doesn't mean you should own any Pokemon. Skitty, Pidgey, Lillipup, Dedenne, they are all Pokemon that would be preferred, like how you are allowed to keep a cat, but not a fox. (In some countries, at least)
And how many Pokemon you can carry at once would be monitored as well. (Which, of course, would be 6 )
You could keep your other Pokemon at home, or at a ranch.
Like any law, these laws would be bent and certain Officers, whom obtain a Growlithe or Herdier upon registration, would be sent to deal with these people.
I am not too sure how animals would react.
To avoid problems with nature and its delicate ecosystem, there would be major precautions on Pokemon behavior and diet. If you saw a Rattata, it would probably run away, like a normal rat. If you saw a Rhyhorn, it would probably grunt, stare, or maybe it wouldn't even acknowledge your existence. Like normal animals, Pokemon would not attack unless provoked. I can't stress this point enough, any Pokemon that would be considered dangerous won't be living in neighborhoods, but in distant places of the world, like mountains or forests, like dangerous animals. In fact, even with Pokemon in the real world, you would be more likely to be killed by a normal animal that can be found in your local neighborhood. (Or maybe I just feel that way because in Australia, everything can kill you. There are so many poisonous spiders and snakes living in suburbia. )
Most Pokemon would probably be omnivorous. You could probably feed them with dog or cat food. (Or even fish food, haha) The Pokedex app could contain data on how to feed your Pokemon. Maybe Jamie Oliver would start a show about "How to Cook for your Pokemon in under 15 minutes!" Who knows.
If GF had the technology to create Pokemon, I am sure that they can at least manipulate their diets. Pokemon that need meat to keep their muscles at tip top shape, their diets might be altered for the better so they feed on pests such as rabbits or feral boar.
People freak out like a Charizard would fly into their house and burn you alive. Has a lion run across the ocean just to attack some old lady in a park in Canada? No, well, not that I know of. But it just wouldn't happen. The government, or whoever is in charge nowadays, would have such a tight grip over the safety of handling Pokemon that you wouldn't have much to worry about. And any dangerous Pokemon would live far enough away that they would be hard to find, or even capture. As long as people are responsible with their Pokemon, everything would be fine.
I would also like to add another point; the idea that Pokemon battles are animal cruelty. When you pit two animals together unnaturally just for the sake of entertainment while endangering the two animals is indeed animal cruelty. But with Pokemon, it's a different thing. For them, it's their form of exercise. Just as lion cubs play fight to sharpen their skills before they grow up, Pokemon battles would be the same process, except a bit more extreme. There would be no "Hit Point" bar. The Pokemon's ability to stand in the fight would be determined by the trainer. This is why a test to receive your Trainer Card would be an obligation. It would feature a check on criminal records, birthdate and personal information, along with possibly a written test and a battle test where you battle against another Pokemon with a rented Pokemon to see if the person is legible for the Trainer Card.
You would humanely not push your own pet or someone else's to the brink of death, so why would you do the same with your own Pokemon. If you would, you need to go see someone. Like dog walking, it's a form of exercise to help the Pokemon evolve and grow.
Pokemon tournaments would be awesome.