what exactly is it?
is it an actual pickup or something to install into the pickup?
steve vai uses the Fernandes Sustainer but how exactly does it work? and does it render your neck pickup completely unplayable unless you're using the sustainer otherwise?
It is an actual pickup - a single coil size "driver" that goes at the neck and then a humbucker pup that goes at the bridge. Basically gives you infinate sustain. Matt Bellamy uses one to control infinite feedback type sounds.
Ibanez Prestige RG1570 w/ Swineys
Fender Standard Telecaster w/ Duncans
Ibanez RGT42DXFX w/ EMG

Behringer 15W Amp

Dunlop 535Q Wah
Zvex Fuzz Factory
It replaces your neck pickup (I believe you can still somehow fit a singlecoil in there along with it).

It allows notes to sustain (either the original note, 1 octave up or 2 octaves up) by creating a feedback loop back into it (the signal from you're playing is amplified then sent into a coil that generates a magnetic field that moves the string), like standing next to your amp but more controlable.
The E-bow thing if you've seen it works on the same principle (it has its own builting pickup to detect the string).
it costs somewhere in the neighborhood of 150-200 last I checked, but it's a difficult install and there's no guarantee that it will exactly like it does in the Fernandes brand guitars, it's better to buy a fernandes guitar that's already equipped with one.
yeh, your gonna have to put a few cavities into the body of your Guitar to fit one
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installation is very simple. and no modification is needed; it works for all guitars. but there has to be at least 95mm or 3.7'' distance from the sustainer to the driver. the driver is the bridge pickup. you can find them in both single coil and humbucker size. and the modes are natural, harmonic, and mix.