Unfortunately, it appears that development was never finished. A real shame as I could definitely see a use for this question type.
It installs okay...tried it in Moodle 2.8.10+ and 3.0.2+. In both, when you preview a question and submit an answer, you always get a fatal error: Fatal error: Call to undefined method qtype_highlightwords_question::discard_duplicates().
If you comment out the two lines that check for duplicates, then, whether you answer right or wrong, you always get: Warning: Division by zero.
I haven't experimented with it any further, except to note that the README.txt file is empty and there doesn't appear to be any usage notes anywhere. The en language file did give me the clue that answers are preceded by an asterisk.