An extension may supply modified copies of core PHP and template files, and by doing so causes CiviCRM to use those files in place of the original so long as the extension is enabled. There's nothing wrong with doing this; some functionality would be very difficult, if not impossible, to implement otherwise. The only downside is that they can be hard to maintain.
So what happens when the core file that the extension has overridden gets modified? CiviCRM will continue to use the overriden file provided by the extension. This means a security patch may not get applied, or you might miss out on some new feature that was added, etc.
This extension makes it easier to keep track of which extensions override core files, and to detect when a core file that's been overriden gets updated.