What the flick is this?
Malignancy is just something to give meaning to friendly Malifaux games. Rather than have a league which would tie a player to using a single crew for all their games, the results of these friendly games affect the territories each of the game's Masters control. A player can, if he wishes, use a different Master in each of his games or can stick with the same Master for every game.
Malignancy also allows every game to be for a different size - one game might be for 25ss using a box set's crew, the next could be a huge 60ss brawl (although in this case two of the Masters would have to be the the Masters whose territories are at stake).
The structure is based heavily on a Battle for Malifaux league format found on Wyrd's forums but changed so that it's the Masters who control territories rather than players. Much credit is, therefore, owed to Dustin Smith for coming up with the original idea.