When a person opts to use the edit>fade, it
MUST be done immediately following the step you wish to fade otherwise it grays out. It is sort of like undo on steroids.
Example: I overdo a Gaussian blur. Say, for grins, I use a 10 pixel blur and whatever I try to blur only needs a portion of that; but I'm not sure what will look best. I can either undo that step and start over by guessing hit and miss style. Or, I can immediately go to edit>fade (in this case Gaussian blur) and tweak the settings by using the slider. I can also experiment with different blending modes there as well. The same goes for most of the tools, brushes, etc. All can be faded as long as you do it right after.
Clear as mud?
Janet