I've had a limited amount of experience with the U.S. Sub Decoy system. I know the Porpoise and Gato class subs have the decoys, I'm not sure about the other subs. There's no mention of them installed on the boat but, you
will find the "Decoy Launcher" under the Aft Torpedo Room section of the SubSystem menu.
The "J" key will launch the Bubble Generator canister just forward of the screws. I believe there are a total of 8 decoy canisters. Once depleted you'll get a "No decoy available" message in the Text Screen.
Here's what one looks like under water:
As far as the decoys actually doing something by masking your sub from an enemy's sonar, or creating a "false positive" during the AI's sonar detection........I can't say that they do anything. There is nothing in the Sim.cfg file that lists the AI's sonar sensors being altered by the use of a decoy. I would think if a decoy were to aid in the AI's sonar detection capabilities one would have the ability to modify the results much like the sonars attenuation beyond the thermal layer.
As far as I can tell, there is little we can do with the decoy capabilities. It would appear they are hard coded with the odd chance that some AI sonar detection limit was added there.
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EDIT: There are a total of 10 canisters on board. Couldn't count!?!