Thermocouple grade wire is used to manufacture thermocouple probes. Thermocouple grade wire is normally used for the junction and inside the stem sheath.
Extension grade wire is used to extend from the thermocouple probe to the control system or digital display. Extension grade wire is more economical due to lesser grade alloys being used. Extension grade wire is also not generally within the process and does not play as critical of a role as the thermocouple grade wire. It also does not experience the temperature extremes and cycling of the sensor itself.
In many industrial applications, a sensor is located in a process pipe far away from the control room. This means that wire must be run a considerable distance back to the control room to get the temperature reading. Using more expensive thermocouple grade wire to accomplish this is unnecessary. Extension grade wire will do the job.