I guess there was a similar question before on your brother in law interested on your undergarments. I got a warning from editors not to bring old issues, I dont want another warning mentioning anything, so lets assume you are talking about the same 19 year old boy.
Sniffing panty, used or not is nothing new. Specially for guys who never smelled a live vagina, thinks about all the juices, gets a raging hardon to masturbate. Some even smell the washed one, visualizing the woman who wears that. I dont see that any mental disorder or anything, this is expected for a young guy to add a flavor on their fantasy. You cant stop anyone not to have a fantasy, the used or washed panty in hand only adds as ice-cream topping.
What is the never seen crazy stuff that you are talking about? I will guess, he is rubbing that on his penis. Its only natural. A guy will love a woman's smell, feel the touch of soft cotton, its noway wrong. You should take care of your undergarments, never leave unattended, and keep in safe place. That solves all.
You asked if thats a fetish or a fantasy about the owner, my reply is, its both. It starts with a fantasy, but ends with fetish. Fetish are those acts where touch, smell, watch are needed. His fantasy got some fuel by being able to watch, touch and smell, even rubbing on his body. But these are harmless fetish, you should let it pass by.
How to deal, I already mentioned, don't let your things unattended, once washed and dried, keep under lock. Yes, such things are not harmful, so should be ignored completely. not even mention that you know about this. This happens due to age, soon enough when he gets the real deal, he wont bother to sniff around any more. And no, these people aren't sick. Having a fetish is normal, some has a nasty fetish, some has a kinky fetish, some has a harmless fetish, the rest has no fetish. Other than harmful or kinky one, the rest doen't affect the person or anyone any harm, so he is not sick.