You can "extend to" or "extend by" but not "extend over". So Sentence number 2 is grammatically incorrect.

Spread over is used if there is a unit of measure attached to it like time, distance or units. Extend means that the event or unit of measure has additions. There is no “extend over.”

Both "spread over" and "extend" can be used to indicate a duration that covers a certain period of time. However, there is a slight difference in their meanings and usage. "Spread over" is commonly used to describe the distribution or arrangement of something over an area or period of time. In the context of the sentence (1), "spread over" suggests that the festival is arranged or distributed across three days, and it may also imply that different events or activities are planned for each day of the festival. On the other hand, "extend" generally means to make something longer or to continue it for a longer time. In the context of the sentence (2), "extended over" suggests that the festival is prolonged for three days beyond its usual duration or original schedule. Therefore, in this particular context, "spread over" is a more appropriate and commonly used phrase to describe the duration of the festival over three days, whereas "extended over" may imply a change or extension of the festival's original schedule or duration.

To me, neither one sounds very natural. I would suggest: The festival lasts three days. OR The festival is three days long.

Some very slight differences.... (1) "extend" is more formal/written language than "spread over"; (2) for me, similarly, "spread over" feels more metaphorical than "extends". I think its more literal use is in a context like, "He spreads his arms" or "The blanket was spread over the bed". (3) for me, your first sentence is more natural English than the second. If you had written, "The festival *extends* over three days", that would sound more natural to my ears than "is extended". I'm not sure why, but I think the passive "is extended" is more often used in a context to do with stretching something beyond its original limits. For instance: "The deadline for submitting the essay has been extended from 5pm to 6pm".