They block low voltage galvanic currents that occur between dissimilar metals in salt water, block DC current in the AC ground wires to help prevent corrosion to other boats with aluminum drives and might help keep your zincs lasting longer.
http://www.boatus.com/seaworthy/galvanic/default12_06.asp

Typically they are made using diodes to block DC and a capacitor to pass AC all the time.

Could one be made using an AC capacitor alone, like you find in an HVAC motor compressor?
And some are home made like this
http://quinco.net.au/galvisol.html
Would the home made 50 amp bridge rectifier in fig1 be able to withstand repeated AC ground current faults without burnout?

I have had them in the ac ground line like fig 1, but fig 2 appeals to me.
Figure 2 keeps the ac green wire intact, no failure of an isolator to leave ground open circuited.
Fig 2, all DC grounds MUST go through only the AC ground at a the single point of connection, or the isolator cant do its job of blocking low voltage galvanic DC currents.
Figure 2 lets the GI work with less chance of having to handle a large AC current short.

Today, mostly what someone can buy is connected as figure 1 and called a 'fail safe galvanic isolater' which because it is so robust does not need indicator circuits to tell you if it is still functional.

Any opinions about fig 2 being better or worse?

 

The idea of understanding a harbor full of boats makes my head want to explode. Can you point to any site or reference that provides some understanding about how to deal with dozens of, "battery terminals" made of random metals in random positions in the electrolyte?

 

The idea is keeping those DC batteries isolated to your particular boats electrical wiring.
The galvanic corrosion is of the underwater metals in seawater, so the electrolyte is the salt in the sea selectively corroding zinc or magnesium anodes instead of your props, struts, rudders, keels, any metal that you don't want to waste away.
Metals in electrolytic solution in contact with differing metals create an underwater battery that selectively destroys one metal which is less noble on the galvanic scale compared to another.
And if the ground wire is intact, DC galvanic corrosion currents can come in and go out by way of everyone sharing an undersea interlinked network of ground wires. And that is what you want to break the circuit, the DC, but allow any AC to pass.

Ideally just absolutely blocking all DC which is low voltage is perfect with the high voltage AC fault currents fully allowed to flow.

I have not noticed any significant corrosion of my bronze prop, stuts, rudders or SS prop shaft since 1998 and only recently have been thinking of galvanic isolators. The linked article says you may never have a problem, all depends on what metals are nearby and if they are more noble than yours.

If someone parked their aluminium outdrive boat next to mine, then they would protect my metal while theirs get eaten by the sea, after their own zincs are gone, and their zinc wastage would be accelerated by my boat.

Really their is no way to open circuit your 12vdc battery connection since you must have all your metals bonded-linked. For example on my boat the metal fuel tank is bonded to the metal shaft log and the rudder and strut and all that is also connected to the engine block which is connected to the negative battery terminal. A real serious corrosion problem can happen if you have a fault where the battery 12v positive wire falls into the bilge of your boat. And i read that can affect other boats nearby, if you dont have a galvanic isolator.

For example, if you did not bond your fuel tank, when you fill up, a static spark could explode the fuel and you with it.

The trend now is to isolate rudders, props, shafts under water metal through hulls from each other. That helps to prevent all of them excessively corroding away. Years ago they thought it better to bond all together, but not any more. I broke all the bonds except those with the fuel tank to shaft log to engine block.