ok, from the book Reef Invertebraes, by Bob Fenner and Anthony Calfo (head dudes at wet web media) you frag a sponge like you frag a coral, allbeit you do it underwater. Clean sure cuts with a sharp blade to remove 'buds' attatch as soon as possible to a rock or plug via mono-fillament or super glue (how do you apply super glue under water?

Apparently, according to this book, many sponges derive nutrition fom a symbiotic algal relationship, not with zooanthelle, but with cyanobacteria! yet another reason not to medicate to rid a tank of slime algae... good light, good current, will assist your sponge and it's frags in growing, it is greatly assisted by a live phyto drip as well apparently.