The extended data fields can be used to store information about an item that is not captured elsewhere. This information could be something specific to your type of item or something for display purposes etc. Some examples:
For books you might want to store and ISBN number
For food you might want to store nutrition information
For clothes perhaps you want to store measurements for differnet sizes
The possibilities are endless. To add a extended field to your items layout please visit Inventory -->Items...> Layout, choose custom layout and then enter the keywords for the extended data fields into your layout.