DEMON isn't a narrowband display, but that's neither here nor there.
Active/passive countermeasures are used for when a torpedo is either active or passive on you. Most torpedoes start out passive then go active when they get close enough for terminal homing. So at first when there's a torpedo heading in your direction you'd generally pop off some passive countermeasures to try and lure the torpedo away from you. If the torpedo gets too close and starts pinging you, that's when you start using active CMs.
As far as passive vs active for your torpedoes, it's similar in reverse. The torpedo will home in passively then go active for the final kill. Of course, you can set where the torpedo enables and goes active to look for the target (this is what the enable button does). A torpedo or a counter measure going active doesn't necessarily reveal your position, but given that both torpedoes and countermeasures are really loud, they do reveal your bearing at their time of launch, which can leave you vulnerable to a snapshot.
In the case of countermeasures, it doesn't matter because your position is already given away if someone's shooting at you. In the case of a torpedo, however, they will pick up your bearing. This is why it's a good idea to make a course change after you take a shot.
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