How do you pass a hash table to a function in PowerShell?

Do not use parenthesis and commas. This is PowerShell (say, arguments are similar to arguments of commands in CMD). That is, call your function like this:

ExtendHash $hash1 $hash2

In your case expression ($hash1,$hash2) is an array of two items and you pass this array, one argument, to the function. Such a call fails correctly.

If you use Set-StrictMode -Version 2 then this “common” mistake is caught by PowerShell:

The function or command was called as if it were a method. Parameters
should be separated by spaces. For information about parameters, see
the about_Parameters Help topic.