Thermocouple grade wire is used to manufacture thermocouple probes. Thermocouple grade wire is normally used for the junction and inside the stem sheath. This is because the thermocouple grade wire has a accuracy specification than extension grade wire.
Extension grade wire is a less expensive, lower grade wire. It is used to extend from the thermocouple probe to the control system or digital display. Extension grade wire is more economical due to the length requirements. Also, it is not in the process itself and does not play as critical a role nor does it experience the temperature extremes & temperature cycling.
In many industrial applications a sensor is located in a process pipe far away from the control room. This means a 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.