Per the Scratch Wiki:

Scratch Extensions make it possible to connect Scratch projects with external hardware (such as LEGO WeDo or PicoBoard) or sources of information on the web. They add a collection of command and reporter blocks that can be used to interact with a particular device or data source. When an extension is enabled, its blocks appear in the “More Blocks” palette.

You can think of them as special Scratch Blocks created by other Scratchers that expand the reach of Scratch.

If you are interested in making extensions, please read the Extension Developer Documentation.