Fairy Dust is not, despite popular belief, an obtainable object; in basic terms, it's the 'Morality of Power.' When Wheatlies gives Admin powers to a player, they assume many responsibilities, some of which but not limited to are: To protect the Server from exploiters, to use their power wisely, to not abuse their power.. Well a particular Admin/Moderator may choose to use the Magic Dust method which EB8699 has done. A more Role-Play/Lore way of reading this can be found here.
What is Fairy Dust?
To picture this more easily, imagine the choices you make and how your Moral behavior shapes that, now imagine that you are an Admin with all the commands at your disposal, every choice you make no matter how small can have a large impact on people. So you give your Morality more freedom to control your actions, this is where Fairy Dust comes in, it helps moderate how much you use, what you use it for and who you use it on.
The Fairy Dust method is not required; it was also designed to be added alongside the Obsidian Oath, so it really is entirely up to the good heart of the person to play along with the idea of Fairy Dust.
Where does it come from?
I'll explain it in the more 'Magical' sense first then in a less imaginative sense but more practical down to earth way.
Lord Wheatlies provides a steady stream of Fairy Dust every hour, during the time in between a Admin must do good/useful things to gather more, if he does bad things then the amount is reduced sometimes to 0. As such this makes Admins want to do good to get more Fairy Dust they can use, banning Exploiters does not use Fairy Dust but adds to it.
Wheatlies promotes a player to Admin, during this period a Admin is expected to do good to the community and be of use, if he does bad things then he'll probably lose his job or be temporarily demoted.
How is it measured?
The user of the Magical Dust is unable to tell when they have used to much, the only way to tell is by how the people in the Realm react, when they react badly to the Magic being used it causes disturbances in the fabric, thus the user is affected but only if they realize it and respond.. If they do not then the Gods of Expedition will listen to the whispers of their followers and decide if the ones they have bestowed the privilege of using their power are still worthy of it.
Currently there is no set "You can only use this command so many times" sort of thing, it's generally up to how happy the server is, the more you use commands the more the difference between people that like it and people that think your a hacker/abuser, so you need to picture a gauge in your mind as to how much the community is willing to put up with your.. Shenanigans. It has been known for a 20+ Server to go dead instantly when a Admin abuses their power without realizing it when they thought it was harmless.
Is there any way to know?
It is sometimes difficult, but one can tell on their own, usually you feel when the magic has been pushed too far and the fabric begins to tear, people are the best example as when the magic becomes unstable it is represented by the people that inhabit this Realm, when the people are angry at the users of Magic or when they grow restless and some start leaving the Islands to other lands is when Magic has been abused. When unrealistic magic is used such as immortality people can feel this is unholy and must be evil. Of which then creates a unstable fabric.
Sort of, to make it easier for those that don't understand or want to but feel like they need to know when the Admin pushes the boundary's, a phrase that some might recognize that fits quite well with this is: "All magic comes with a Price" and "All magic has it's limits". In example, when a Player is made Giant or Mini, they are unable to do certain things, Giants are unable to do anything but walk around and see the world from a different view, mini's can glitch out of the map due to physics and die as well as being unable to chop trees without some sort of lift. That's a example of the price for Magic as well as a way to prevent people from easily abusing this, for it's limits I go to the :god command, this should never be used normally unless the circumstance has no other option, the reason for this is that it makes a player unkillable meaning they are not part of the game, :loopheal can be used as they are still killable but the :god command is just too easily abused and seen as Hacking. As such using the command will cause many to turn on the user of it. Another limit is using :admin/:member, unless the Admin has done a lot of good and thinks very highly of a player the risk for this is just too high, the limitations of commands prevent them from using :admin anyway, even if a player is made Member it is for that Server only and carries Extreme risk if it is used on a populated server.
Having Pixie Dust is not the end of progression, it is not about impersonating the Gods and making all without your power bow beneath you, it is a Privilege that has been given to you, the Gods have also given you a set of Rules for the power that you have been given which you are free to choose to either follow or ignore. There is a price for Ignoring and a Limit for following, both are for not only your good but for everyone else's too. With the Limits of Magic you are able to have fun and teach the new generations about the Realm without going Evil. The Cost of using Magic but not following the rules is that everyone will hate you and the Gods will probably revoke your Power and take you from the Realm.
Despite what some people think, being Admin isn't all about being a 'God' and showing your powers to the players of the server, this is why there are limits as well as a cost. as such the use of the Fairy Dust Method provides a much more entertaining guide than a page of Rules, thus helping to ease the boredom of the Admin and the Community. From the Fairy Dust method you are able to use commands for fun without pushing too far, when added with the Obsidian Oath some interesting effects can happen such as the Hanblon Guardians which are a cross between Fairy Dust method users and Obsidian Oath keepers but more on that in the link.
How does this affect me? (tl;dr)
As a fellow mortal in this Realm this affects you a great deal, for you have to live along side these Powerful Beings and you would not want them doing the wrong thing while still keeping those doing the wrong thing away, you might also want to know what keeps them from doing Evil and why they choose not to do Evil. You might even want to know more about the Magic that flows through the world of which so few can harness. That is why this text is here, to help you understand the world around you.
It doesn't really, it simply explains that the Admins which you occasionally see that follow this method have a rule to never intentionally push their powers to far while maintaining balance between command fun and gameplay fun. When you see a Admin say they follow this then you are asked to give them the benefit of the doubt that they are not there to hurt anyone and are there to help make the grind a little less burdensome without flat out cheating.