A few key reasons exist why the animals were fooled. One, they wanted to believe that Squealer had their best interest at heart. It is a powerful thing, change, and people sometimes believe what they want to believe if they think it will better their lot in life. Two, the animals were ignorant, meaning uneducated, and they simply could not truly comprehend these actions. Three, the power of propaganda was at play here, and the animals had become acclimated to strange behaviors on the part of the rulers and accepted them at face value.
Remember that the book states repeatedly that the pigs are among the smartest animals on the farm. Not all the animals could read, but they were read the commandments and rules under which the animals would live together. There are a few others who are smart (Benjamin the donkey, perhaps), but the pigs convince them through Snowball, Squealer, and other propaganda artists that their memories are faulty. It seems that this could possibly be true since the animals all remembered certain parts of the commandments but not the entire thing. It never occurred to them that they had been altered to allow certain behaviors for the pigs or other animals.
For example: Clover thought she remembered the commandment about sleeping in beds. (Chapter VI, page 69 of the Signet Classic version).
"Muriel," she said, "read me the Fourth Commandment. Does it not say something about never sleeping in a bed?"
With some difficulty Muriel spelt it out.
"It says, 'No animal shall sleep in a bed with sheets,'" she announced finally.
Curiously enough, Clover had not remembered that the Fourth Commandment mentioned sheets; but as it was there on the wall, it must have done so.
Simply put, it is easier for the animals to allow their leaders to "fool" them than it is to think for themselves and stand up against the majority. This is especially true in the chapter where the "confessors" are slaughtered in front of the rest of the animals.