File extension is used for describing of the data's structure in the current computer file.
As the every file is only a sequence of bits ("1" and "0"), computer programs, saving data to the file, need to convert the information to the sequence of bits and on the contrary. The conversion algorithm and also information about the different fragments of the data inside the file after the transformation makes the notion about the «file formatї.
Different file formats may differ by the degree of detalization, and in the same time one file can be referred to the several formats. E.g. The text format superimposes only general limits to the data structure. The HTML-format superimposes more detailed rules of the inner structure of the file, but every HTML-file is also text file.
You may need the programs for the decryption of file's extensions if you find the file with the unknown extension, if you need this file to be opened, but you don't know any program for it.