Hi Michael,
Easy one first. As you only ever pay for each zone once, a 3-2-1-2-3 journey will only have one extension fare.
Now for some history. In the early days extension fares were easy. They literally were just the normal single fares for the zones covered at the same scale as the overall journey. Then contactless came along and extension fares became more dynamic depending on the amount of journeys made and the zones covered. If you made more than just a single return journey then it was likely that you’d hit a cap and have a couple of extension fares. It was still usually just the single fares for the zones covered, remembering that extra bits like Shenfield, Hertford East etc were still in zones, numbered 10-12.
The game changer was the extension to Gatwick utilising zones 13 and 14. GTR/DfT expected commuters to pay pretty much the same fares as they did on paper, but the bonkers cheap single fares between East Croydon (5) and Gatwick meant that contactless users were capped at zones 1-4 with cheap extension fares, undercutting the expected overall fares by a significant margin. The result was that contactless extension fares were allowed to be set at different levels.
Also introduced at the time of the Gatwick extension was the concept of mixed mode fares avoiding zone 1 being different to just the National Rail element. I’ll be honest, I don’t know what extension will be charged for Gatwick to Oxford Circus with a zone 1-2 travelcard. It might be like the Victoria fare, or it could be the Tooting Bec fare. If you try it out then please do let me know. I’m sorry I can’t be more precise at this point.