Extension
An extension is an add-on you install in an app like VS Code to give it new abilities, such as running Python or opening notebooks.
In VS Code, extensions live in the Extensions panel: the four-squares icon on the left. Search for a name, click Install, and it's ready. For Python notebooks you want two, both published by Microsoft: Python and Jupyter.
An extension adds to the editor. Packages like pandas go into your Python environment, and you install those separately.