If there are curtains on the window, the curtains are being used to cover the windows or at least to decorate the window. 

If there are curtains by the window, the curtains not are being used to cover the windows.  Frankly, I don't know what they are used for.  Decoration?  "By" makes the sentence sound very strange and stilted.  "By" implies no connection with the window other than proximity.  "At" sounds even weirder.