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For dungeons, that's all you do, an unlevelled failure title has -80% on all stats and -100% on exp.
Since the title of a dungeon is applied to all of the enemies inside it (but not to the items) it makes them incredibly weak.
The way to "use" this is to make a much higher level dungeon, put the title on it and make use of the high level items inside it to confine your characters before quickly killing the enemies.
Since items have their own titles instead, they are not affected and high level items give a lot of exp at the end of the stage for the phantoms confined into them, especially if they had a good title applied to them (and higher level items in those dungeons typically have access to even better titles).
If possible you want to bring back a few items as well, since they tend to have very high stats as well as a lot of mana, but only the bottlemails can realistically bring items back when the level difference is high.
Be careful because while the enemies become much weaker, the title still gains stats and skills as you clear stages and you need to be able to get out when they start to not be as easy to kill (preferably teach the skill to marona even if it costs more money to exit it with a character that's not a dungeon monk).
The title is pretty much one-use when used on a dungeon, because even if you fully clear that dungeon (the only way to get a title from a dungeon since applying overwrites the old one instead of exchanging like it does with items and characters) the title won't be debuffing enemies quite as much.
For item fusion, it is fairly simple as well.
Apply the failure title to the item you are keeping to temporarily "weaken" it and fuse a high stats item (preferably with a rather good title that will be lost) into it.
After the fusion, swap the title on the failure item with a good one again.
The reason it works is because it works based on the difference in stats between the two items, the weaker the "base" item is, the more stats are transfered from the stronger item.
And titles are taken into account for that, which is why the failure title can make the "base" item gain a lot more stats than it would otherwise have.
Not because it's a bad idea (it's actually a great way to get strong quickly), but more because it can remove most of the challenge of the Main Campaign, which can take part of the fun of the game away.
It's up to you in the end, of course, but I generally prefer to not use the Failure Title before I reach post-game, as I find the game to be more fun like that~