This question arose here.
You can use this skill to cause an opponent to become shaken for a number of rounds. The DC of this check is equal to 10 + the target's Hit Dice + the target's Wisdom modifier. If you are successful, the target is shaken for 1 round. This duration increases by 1 round for every 5 by which you beat the DC. You can only threaten an opponent in this way if they are within 30 feet and can clearly see and hear you. Using demoralize on the same creature only extends the duration; it does not create a stronger fear condition.
I think it overlaps rounds of shaken. See other thread for detailed discussion.
/cevah
PS: If you want to make it in FAQ form, you should bold the question to be FAQed. Makes it easier to identify. Follow this with your argument briefly. Spoiler relevant rules quotes.
I know that disheartening display lets you ramp up the fear to 'cower in a corner' levels as you move from step to step.
Since that is also an intimidate/demoralize check, and it has to add in this clause... it implies that you cannot just ramp up the level of fear normally.
My part of the argument stems from the final phrase in the Demoralize ability:
"Using demoralize on the same creature only extends the duration; it does not create a stronger fear condition."
Per Cevah's reading, 'the duration' is only defined as the Shaken Condition.
Per my reading, 'the duration' is defined as whatever Demoralized does.
Because of this duel-reading, there are different potential outcomes to the question in the first post.
Also, there is an issue with the term "extend". Does this mean "add the duration of the fear effect to the current duration" or does this mean "Keep the fear effect going for some duration"(I still don't understand what this would actually mean).
As a GM for my game I have had this build pass by me before. The way it works (or as my table justly believes) is that the phrase in demoralize referring to it cannot create a stronger fear condition ON ITS OWN. That being said if you have made a character Frightened through the use of the Thugs ability the rounds of shaken extends their Frightened condition as per normal fear condition interaction rules.
So if I am understanding correctly their is two schools of thought here. One states that when it states "extends the duration" this would apply to the Frightened condition because that is the highest existing fear condition and is therefore extended instead of increased because of the limitations of demoralize. I believe this is the correct RAW translation based of the given rules in the last thread.
That being said I believe the interpretation that creates a larger divide between the shaken and frightend condition is fairer. Because demoralize doesn't specify which fear effect and expects you to assume it all applies to shaken is the issue. Sadly, the lack of specificity leaves it open to interpretation making it both plausable.
All in all, the RAW is it extends frighten, but a strong argument of fairness (which is always valid for consideration independent of RAW) can be made on why it shouldn't. Take it as you may.