Well "this thing" is a repacker, the software use compression method to decrease games files size then, after the compression, you can "install" the game (basicly decompress) to a folder and run it.
You can a find a clear and simple explanation of how data compression work here
LMAO no, it's depend on witch compression method you use and for what files (you can find a better explanation here), you can compress from 100GB to ~50GB (if you'r lucky).
Probably no, fitgirl (and others repacker) use FreeArc (and a combination of others tools) to make games smaller, here we only use compression method in a simple way, so yes you can compress games but not all games are going to be compress and not with the same ratio, this software is mean to be use to create simple repack not smaller that possible.
Yes it's totally possible to add more compression method, you can open a issue to ask for a compression method or make a pull request to directly adding one.
Like i said before it's depend on the files not all compression method are compatible with all files, you can give a try to ZTSD, XZ or Brotli (slower but better in compression).
You can share it on twitter with #Hakkuraifu-Repacker, a website to store and share all the repacks is going to be made soon.
You can use steam/epic emulators but you need to credit them.