You eat the mushroom, and grow to twice your original height. Wait, no you don't. Grow to twice your original height, that is. You definitely eat the mushroom. Definitely.
Since the implementation of ascension, the description has been incorrect; you can also grow them in the depths of Degrassi Knoll, in its Mushroom Fields.
In addition, The Haiku Dungeon update makes the description even less true.
References
The phrase in the item's description, "It's a fungi" is a pun for "It's a fun guy".
In Lewis Carroll's Alice in Wonderland, Alice finds two edible mushrooms. One makes her grow to at least twice her size, and the other one makes her shrink very small, both in proportion to how much of the mushroom she eats.
