What word describes our habit to use extremes in language, and what are its implications?

The term you're looking for is hyperbole.

As for the effects on our daily lives, this psychologist has a great run down. He attributes a concept called "linguistic relativity", something he asserts affects us all, to the use of language we use every day to describe our lives. He suggests that words not only allow us to communicate our experience to others, but that the words themselves can shape the experience. For example, think of a time another car darted in front of you in traffic. There are many ways to describe this situation. One might be something like "I was almost killed today when some jerk cut me off!" Another description of the same event might be "There was a pretty dangerous situation on the road today when another driver merged in front of me pretty quickly and without notice." For many people, the first description is going to produce more anger, whereas the other may produce a more moderated concern, yet both of them are true.

The Dr in the article above focuses on how some people tend to paint themselves into unrealistically negative worldviews, however, I've noted that a lot of my friends tend to use hyperbole in a positive way: "That was the best dinner EVER." If his point holds true, the use of hyperbole by a positive person helps paint their reality into this thing I personally call "The Dream".

I attribute this phenomenon, at least as far as using words like super crazy, awesome, creepy, hilarious, etc. to a general tolerance for exaggeration. Essentially, we have a tendency (at least in American English) to want to emphasize, but pretty soon it becomes the baseline, leading to something no longer just being "amazing" but super amazing.

My gf says that it's not just the tendency to exaggerate, but the expectation it puts on everyone. In other words, when some people say "that's amazing!" it forces us to say "that's really amazing!" even when we don't want to exaggerate, only to distinguish our genuine amazement from the hyper-used term.

My favorite quote regarding this phenomenon is along the lines of:

"If a Big Mac with everything on it is awesome, then how do we describe the Grand Canyon?"