An extension extends or overides the structure and/or style of a child theme. This is done via functions.php (to alter the structure) and/or style.css (to alter the style). An extension is nothing but a directory which typically has functions.php, style.css (plus optionally a corresponding images directory) and resides under the child theme directory. An extension is applied to a layout.
To apply one of these extensions to your desired layout, go to My Theme -> Layouts and select it from the Extension dropdown and save the layout.
99% of the cases, we leave "Should this Extension disable the theme's style.css file?" to the default, No. If it is set to Yes, then the child theme's style.css will not be applied to (and hence used in) any view that uses this layout.
If you would like to edit one of the stock extensions or use your own, then DO NOT edit/add new in extensions directory under the parent Builder directory. Instead, create a new directory named "extensions" under your child theme and then copy the stock extension to it and modify or create a new one in it.
Magazine Extension Enhanced - with post thumbnails
Download this file, extract its contents to your computer and upload the "magazine-enhanced" folder to a directory named "extensions" under your child theme. Create extensions directory if it doesn't exist.
Edit the layout that's being used by your Posts page and apply "Magazine Enhanced" extension.
If you would like to change the dimensions of the thumbnail image (currently it is 150 x 150):
- set the width and height in line 16 of the extension's functions.php
- set the the same width and height as in the above step in extension's style.css around line 23