File extensions indicate the format of a document and which program should be used to open it. Different software programs use different file extensions, like Microsoft Word 2010 using .docx instead of older versions that used .doc. File extensions help identify the correct software needed to view files of different media types such as music, pictures, and documents based on extensions like .mp3, .jpeg, and .pptx. They allow files to be opened using the appropriate program based on the extension.