I've seen similar mushrooms on my trees, usually it starts due to dead bark tissue from winter/frost injury. The tree can still live for many years...you can cut away dead tissue, a little into good green bark, make sure to sterilize tool then paint with a latex paint, light color.

The bark on some of the branches looks very dark and I assume that is where the fungus is located. I dont' know why the branches are dying, it's certainly not for a lack of water, so I would assume it's directly related to the fungus. Is there any great way to contain the fungus? Or do you just lop off branches as they become infected?

There are several fungi that can cause cankers and most often the only thing you can do is prune out the infected wood and work on the soil so the trees can grow strong and healthy. The link below from Colorado State University may be of some help. Talk with the people at your local office at your local office of the Oregon state University Cooperative Extension Service about this. Here is a link that might be useful: About Cankers

You have quite the colorful garden growing on your apple tree! The bright green in the second picture and probably the dark green with little russet fruiting bodies in the first appear to be moss. The rest--pale green, dull light green, yellow-green, orange-gold, as well as the dusty white splotches, appear to be a variety of lichens. Lichens are associations of two or three distinct organisms (fungus, algae, and sometimes cyanobacteria) living in varying degrees of cooperation. They come in many sizes, shapes and colors. In general neither lichens nor mosses are thought to threaten the health of trees on which they live. I also live in northern California, at about 1500 feet in the Sierra foothills. Our area is sprinkled with black oak and several varieties of scrub and live oak. When cold weather comes and humidity rises, mosses and lichens suddenly become visible on all these trees. The more moisture we get, the more noticeable (and colorful!) the lichens become. Toward the end of a really wet season, the things are literally hanging off of the branches, like Spanish moss in the South. The one I marvel at most has long curly tendrils of bright glowing chartreuse. When the season changes again and things begin to dry, so do the lichens. Their seasonal extensions break, blow off, or dry up, and all but disappear--until the next rainy season. The oak trees never seem to mind. It's dark out right now, so I don't know whether or not we have lichens on our apple tree, but I wouldn't be surprised or worried if I saw them there. Scraping them off could very well injure a tree, allowing entry to a number of truly harmful organisms. The URL below may help allay your concerns. If you are still worried, you could call your local agricultural extension and make an inquiry. Sweetcicely Here is a link that might be useful: Lichen information