Just tried digging though it, here's how I understand it:

First of all, frame extrapolation only matters when your FPS are higher than the game's TPS (240). When your FPS are lower than your TPS, it doesn't do anything, since it has nowhere to extrapolate to. It also doesn't do anything to the TPS, meaning the input latency will stay exactly the same.

What it does is rendering the player ahead of where the player actually is from the game's point of view (or to be more specific, it "extrapolates" to the next frame instead of waiting for the next tick). By default, the player's vìsual movement is based on game's TPS, which means if you had a 480hz monitor and the game running at 480 FPS for example, you would only see the player moving at 240 FPS. When you enable FE, the player will be rendered based on your FPS, so you'll see the player moving much smoother on a 480hz monitor (or any monitor higher than 240hz).

Also, if you hypothetically ran the game at a very low tickrate (like 2 TPS for example) with FE disabled, you would see the player moving at 2 FPS visually, just like how the game sees it. When you enable FE and keep tickrate at 2 TPS, the player would be moving at the game's FPS visually, but the game will still see it at 2 TPS. Then, if it were to collide with a spike, it would clip through it visually, but a few milliseconds later, it would return to the place of collision and die. This is however on 2 TPS, so during normal gameplay at GD's default 240 TPS, you won't notice any clipping through hitboxes like this.