Jersey week got the nickname because so many families from New Jersey got to WDW that week. If you live in NJ and have kids in school, there is one week in November that has Tuesday off for veterans day, and then Thursday & Friday off for the annual state teacher convention. If you are willing to take your kids out of school for the Monday and Wednesday, then its a great week to go. Of course the decision to take your kids our of school for 2 days is made a little easier because there are so many kids out of school, that very little actual new learning is introduced on those two days.
Is it crowded? Yes, but that is a relative thing. It is certainly more crowded than the week before or the week after, but not as crowded as the middle of summer when most families with school aged children can take off and go on vacation. Is every family in New Jersey required to go to WDW by state law? Of course not - it just seems that way if you are there during Jersey Week and you were expecting very light crowds.