The extension word is a password that together with the electrum seed phrase will create a new completely unique wallet that is only accessible with the seed phrase + custom word which is also known as a Passphrase, each wallet gives a name to it , but the technical term is Passphrase (salt).
It's true that when extending the seed with a passphrase, we will get a completely different wallet but, technically, it's not a password. A password is used to encrypt the seed or the wallet file while the passphrase is part of the seed itself.
However, it's worth noting that extending the seed with a passphrase is not going to add much security if it's not too complex or if it's stored in the same place with the seed.