You must think of it as Annotations attached to a CompiledMethod, or if you want as additionnal properties.
Then, thanks to reflection, some tools can walk other compiled methods, collect those with certain annotations (properties) and apply some special handling, like constructing a menu, a list of preferences, or other UI, invoking every class methods marked as #initializer, or some mechanism could be walking the stack back until a method is marked as an #exceptionHandler ...
There are many possibilities, up to you to invent your own meta-property...
EDIT
For the second point, I don't know, it must be a language that can enumerate the methods, and can attach properties to them.
The third point is also hard to answer. In practice, I would say you would use some already existing annotations, but very rarely create a new one, unless you're trying to create a new framework for exception handling, or a new framework for GUI (you want to register some known events or some handlers...). The main usage I would see is for extending, composing an application with unrelated parts, like a main menu. It seems like a relatively un-intrusive way to introduce DECLARATIVE hooks - compared to the very intrusive way to override a well known method TheWorld>>mainMenu. It's also a bit lighter than registering/un-registering IMPERATIVELY via traditional message send at class initialization/unoading. On the other hand, the magic is a bit more hidden.