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Homunculus used to refer to babies that were created by alchemists in the old world, but that is all in the past now.
In the world of EXTRA homunculus and clone technology has become popular in underground society.
Such technology is forbidden by religious ethics, but due to the global birthrate decline which caused there to be a lack of manpower this unlawful technology has continued to thrive.
In areas controlled by the West Europe Plutocracy homunculus technology is considered unethical meaning it is unable to be used openly. However, in areas like Africa, the Middle East, and poor Asian countries, which lie outside of the Plutocracy’s sphere of control, the technology is used to mass produce low quality homunculus that are used as prostitutes, laborers, and for human organ sales.
The West Europe Plutocracy’s monopoly on resources has caused already poor countries to become even poorer which in turn leads them to use create homunculus as a way to obtain foreign capital and goods. This creates a vicious cycle where the poor countries sell their created organs and laborers which improves the Plutocracy’s labor force which in turn leads to the Plutocracy further profiting and solidifying their hold over the world.
Homunculus in the true sense of the word were only created at the Atlas Institute, but its doors have already been closed for all eternity.

Fate/EXTRA Material: Encyclopedia of Fate/EXTRA

An artificial life-form made with alchemy. The ones that Yggdmillennia created as part of their army and as sources of mana supply were made using the techniques of the Einzberns, one of the Three Families who held the ritual of the Holy Grail War in Fuyuki. Einzbern homunculi are made using Magic Circuits as their foundation; to put it another way, they are like deteriorated spirits which were spontaneously produced. As a result, they are extremely useful as mana supply batteries.
However, unlike those made by the Einzberns, which are like works of art, the ones made by Yggdmillennia are a mass-produced product made in large numbers. They are inconsistent in their respective quality, but on the other hand this aspect expresses itself in the homunculi who have some slight individuality. Sieg was a mana supply homunculus and at first couldn’t even walk properly. Mana supply homunculi were made with the concept that they just need to produce mana, so many of them very defective as living beings, such as not being able to breathe from the time they were born.
The one put in charge of making them was the most prominent alchemist within Yggdmillennia, Gordes Musik Yggdmillennia… He’s no good at fighting, but he’s actually quite capable when it comes to alchemy.

Fate/Apocrypha material: Fate/Apocrypha Encylopedia