1. A Fish Extender itself is a pocket or series of pockets that you hang from the little metal fish that is outside every stateroom door and is used as a mail slot by the CMs.
2. It's purpose is to give someone more room to receive gifts or mail than provided by the fish itself.
3. FE are used by people who participate in a sort of gift exchange, generally set up by folks you meet and get to know on the meet thread on this board or other boards. Some choose to do a "secret Santa" type exchange where one gift is given by one cruiser to one other cruiser. Most others do a general exchange where you give a gift to everyone who signs up for the FE exchange, and receive gifts in return from the same people. Occasionally a CM may put your mail in your FE if you have one up, and what they have is too large to fit under your door.
4. Are you asking about decorating the FE itself, or decorating the doors with magnets, or both? The FE itself can be homemade, or purchased. Some get custom FEs made on ebay or etsy. Some just use a small tote bag. Items are placed in the FE by the people giving you gifts as arranged in the FE planning discussions on your cruise meet thread.
If you're asking about door magnets, most people make them at home by printing images on their printer, either on magnetic paper, or by attaching magnets to the back of the printed image (which may be laminated for more durability.) Occasionally people will provide magnets as part of the FE gifts.
5. It varies from sailing to sailing. The longer cruises may have more participation, while the short cruises may have little or no participation. Our WBTA this month has over 75 rooms participating, and the exchange had to be broken up into smaller groups because of the weight limits of the transatlantic flight. We had 20 or so rooms participating on our 7nt cruise in December, but just about 10-12 rooms on our 4nt cruise in January. Only a small portion of cruisers are on the DIS, a smaller subset participates in the meet thread, and an even smaller subset participates in the gift exchange if one is planned.
6. Your meet thread will let you know if the gift exchange is being planned. There are other threads, which you said you saw, that show pictures of the FE itself, and describe some of the creative gifts that people have given (both homemade and purchased.)
If you're more interested in magnets, there is a whole thread about cruise graphics where some very talented people will customize images to match your requests so you can decorate your door, and other posts show pictures of decorated doors.
The FE gift exchange is fun, and can be exciting to see all of the creative and/or useful things that people come up with. We were overwhelmed the first time we participated with the amount of gifts we were given, and the kids were especially excited to see gifts hanging outside the door when we opened it in the morning, or returned to the room at various times during the day. (How people distributed them so quietly I never have figured out!) It can be some work to prepare the gifts depending on what you plan to give out, but it's also fun to share the magic and excitement with others. It may be easier if you don't have to fly, and worry about weight limits, but there are lightweight gift options out there as well.