What is the difference between customization and extension?

Customization is under direct user control.. The user explicitly selects between certain options.

Using customization a user can:

•  Altering the functionality of an application
• Altering existing UI
• Altering existing business logic

Extension is about extending the functionality of an application beyond what can be done through personalization. 

Using extension we can:

• Add new functional flows
• Extend or override existing business logic
• Create New application/module
• Create New page
• Create New attribute
• Extend/Override defaults & validations