File extensions are a mechanism used in some operating systems to denote a computer file's format. While in systems such as Unix they are only used by convention, in other systems, like DOS, they're hard-coded on the system level.
Typically, an "extension" is a series of characters following the file's name, separated by a period. For example, a file named "document.txt" would typically be one whose name is "document" and which contains plain text.
DOS operating systems (including Windows 3.x) limit the number of characters in an extension to three. 32-bit Windows operating systems such as Windows 95, Windows 98, Windows NT, Windows 2000, and Windows XP include a patch at the interface level which simulates a limit of 256 characters in FAT filesystems; at the system level, the three-character limitation remains, albeit invisible to most users. The NTFS filsystems available with NT, 2000 and XP don't have this limitation.
Depending on the settings of the shell/file browser the file extension may not be shown. Malicious users who spread a computer virus or computer worm may use a file name like LOVE-LETTER-FOR-YOU.TXT.vbs which then shows up as LOVE-LETTER-FOR-YOU.TXT. However, it only shows up as that if the user has file extensions disabled. (Microsoft's operating systems do this by default). Thus, to a user who has file extensions hidden, this looks like a harmless text file rather than a computer program written in VBScript.