This is a Silverlight 3 feature only. For similar behavior in Silverlight 2, see Chiron.exe.confg
Silverlight 3 supports caching of transparent platform extensions, which in English means extensions of Silverlight (Controls, DLR, etc) can be downloaded on-demand and cached by the browser the first time the Silverlight application is visited, rather
than packaging everything inside the XAP. While Silverlight 2 supported loading assemblies from outside the XAP, some domains (Microsoft.com, for example) do not allow the transmission of DLLs, so a Silverlight "extension" (.slvx file) is the unit
of transport. A SLVX file is simply a deflate-compressed archive (identical to the compression used on a XAP file), which contains one or more DLLs to load when the application is run.
Silverlight extensions is only for platform assemblies, not user code. This is enforced by the extension's location; it can only be hosted on a Microsoft.com domain. However, it can be redirected to any domain from there (see below).
AgDLR uses Silverlight extensions to deliver DLR+Language assemblies from Codeplex.com when a IronRuby or IronPython application is visited, rather than needing the assemblies in the XAP, or even deployed on your webserver.