A domain name helps to provide a unique address to each of the websites that exist on the Internet. No two sites can have the same name, so a domain name differentiates one website from the other. Each computer on the network uses an IP address but to memorize the complicated IP address is not possible which gave rise to domain name system(DNS).
A domain extension that is also known as TLD (top-level domains) are the last part of the domain name- i.e., the last part that comes after the dot. Some example of domain extensions are .org, .com, .info etc.
The primary purpose of these extensions was to increase the choices of creating a website name and also help to categorize them based on the service they provide. For example, .com was previously used for only commercial website, but today it can be used by anyone. The same goes for .info and .org that were designed for differentiating between informative sites and non-profitable organizations respectively.
As of today, all the extensions are open for everyone to use, but one should be a bit careful for choosing the right domain extension. For instance, if you are using .info in your domain but your website is an online shopping site then it will mislead the users.