This configuration parameter defines the location of extensions (and there is the skins counterpart with $wgStyleDirectory). When it is defined in a wiki configuration, it should be taken into account to search the loading mechanism of extensions/skins.
|mediawiki/extensions/MediaWikiFarm||master||+83 -10||Add support for wgExtensionDirectory and wgStyleDirectory|
Note that Composer-managed extensions must be in $IP/extensions and cannot be moved elsewhere because it is written in Composer autoload (and is the expected location during installation/update). Hence Composer-managed extensions must be there even if non-Composer-managed extensions could be elsewhere according to wgExtensionDirectory/wgStyleDirectory. It is not possible to change that, so let’s call it a Composer feature.