Circles in google plus is a set or collection of people you organize with shared interest. For example you may create a circle called family and add all your family members to it.
In Google+ you may create as many circles you want and even the same person may exist in many circles. For example, you may want to include your friend who is also a colleague in two different circles namely Colleagues and Friends respectively.
Later when you share a post, picture, video or a link through the share box and choose circles, all unique members in those circles will be seeing your content.
Extended circles are circles’ circles. Let us explain with an example,
You have a circle called Friends and you have added a friend Tom in it. Let’s assume Tom has his own circle called Friends and has added his friend Jerry in it.
Now, when you share a post, picture or content with Friends circle, all members in your Friends circle will be able to see it (Tom will be able to see it in his stream).
Let’s say you want to share your content beyond just people in your circle, like people in your friends circles, Extended Circles is the way to go.
While sharing a post, picture or content, add Extended Circles by clicking +Add more people link and enter Extended Circles. It’ll automatically turn into a green color box (refer screenshot below).
In this example, when you add Extended Circles, Jerry will be able to see the content you shared with Tom.
Wait a second, you may wondering, What?? Just by adding Extended Circles, I can send the content to the entire Tom’s social graph of Circles -> Circles -> Circles.
Nope, there is a catch or else it’ll lead to content spam. The catch is, Tom has to enable the Friends circle that Jerry is in to be visible in his profile among other members in his circle (refer screenshot below).
You’ll also not able to see any person in the Extended Circles and it’ll be changing from time to time.
Google+ also uses Extended Circles to provide people suggestions.