When you have a post in your annual report which is either more or less specific than what is covered in the taxonomy, an extension is made to relay the correct information related to that post. As its name implies, you want to extend the accounting definition of your item, as no available taxonomy element close to the item description is to be found. The extension is then anchored to any narrower and wider taxonomy elements which it relates to, according to taxonomy syntax and best practices
When to Create Extensions
In most annual financial reports, there is a post dubbed "Revenue". There already is a perfect fit for "Revenue" in the taxonomy which can be used to correctly identify the post, and because of this, no extension is needed.
If, on the other hand, you wanted a post named "Domestic Revenue" it suddenly becomes more specific than what is already in the taxonomy, and because of this, an extension is made with the name "Domestic Revenue" which is then anchored to the wider (less specific) taxonomy element "Revenue".