1) I advocate at lest 1 day of rest per week even if you are doing only stretchting/hanging/whatever. If you have used too much force in your training sessions, 1 day is kind a safe window and gives your mind a rest too. Everything I have read suggests that doing something more than 5-6 days per week doesn’t give better gains, in any fields. Beside that, manual stretching, even with moderate force (what I suggest) puts more force on the penis than generally believed.
2) Here we have different questions. If you are working length or girth, your goal should always be to enlarge tunica albuginea, which is the ‘limiting factor’, to make use of a sentence in vogue a couple of years ago. The problem is that is not easy to apply the stress relaxation principle to girth work; pumpers I think are used to do that, it is common practice to start with a very low pressure and raise the pressure toward the end of the pumping session. Stress relaxation is also somewhat by default applied when jelqing, since you are supposed to jelq semi-erect and progressively push more blood inside your penis.
‘Do rest days allow your tissues to adapt to new size or do they simply just allow the tissue to revert back to old size?’. The latter is a popular idea among hangers; but if that was true, no one could have gains no matters which technique they are using. If you look at how your penis behaves, you see that it doesn’t remains longer than your BPFSL after a stretching/hanging/extender session; it will go back to a shorter length in a matter of seconds no matter how long you have been holding it at BPFSL. Sure the flaccid length is longer for a while than your average FL, but we are mostly interested in EL; so if the above idea was true, no one could ever achieve longer EL. Truth is, systematically stretching tissue at a longer length than it is accustomed to, will ‘teach’ to said tissue (through several biological mechanisms) how to reach that length easier, and a bigger length over time. Resting isn’t harmful in PE more than it is in weigthlifting or gymnastics. Not enough rest is way more harmful than rest.