This feature will be removed in a future version of Microsoft SQL Server. Do not use this feature in new development work, and modify applications that currently use this feature as soon as possible. Use CLR Integration instead.
The process by which an extended stored procedure works is:
When a client executes an extended stored procedure, the request is transmitted in tabular data stream (TDS) or Simple Object Access Protocol (SOAP) format from the client application to Microsoft SQL Server.
SQL Server searches for the DLL associated with the extended stored procedure, and loads the DLL if it is not already loaded.
SQL Server calls the requested extended stored procedure (implemented as a function inside the DLL).
The extended stored procedure passes result sets and return parameters back to the server by through the Extended Stored Procedure API.