Extended Mode referred to here is a Mode in which output of the computer is extended to dual or multiple Monitors. The Extended Mode can be achieved by connecting a Dual or Multiple Monitor Graphics Card to your Computer. You can even move mouse cursor across dual or multiple monitors in extended mode. The Display Resolution in Extended Mode can be different on different Monitors.
In Contrast the Clone Mode supports the same output on dual or multiple monitors and resolution is the same across all monitors although physical size of Monitors may vary.
The Extended Mode can be useful when you wish to extend your Desktop Area or Work Area. A Simple example can be working on One Monitor and watching TV on other Monitor. Windows 7, Vista and XP do support Extended Mode.