I don't really get it either. I'm not even sure how I, as a developer, can do anything to create fragmentation. If I use the official Android API, than my app (or SDK) should be forward-compatible.

If my app or SDK uses undocumented APIs, then it may not work in newer versions - but I'm not supposed to do that anyway. Maybe this is just a fancy way of saying "use only the documented API, because we guarantee it is stable".

Maybe carriers / handheld makers really just copied the source of the Google SDK, used or changed whatever they felt fit as if everything was an official API and with the next update all their changes were broken... so deriving of the SDK had to be addressed in a special way.

IANAL, but "participating in the creation of" ... "a software development kit derived from the SDK" sound like it contains creating a patch for the SDK. Very unfortunate wording, I wish they would have sticked to "don't use undocumented APIs".