There is no doubt that flavorings are crucial to good baking. Spices and extracts are probably two of the most important types of ingredients to have in the kitchen after the baking basics. Spices are straightforward, even if you buy the kind that you must grind yourself, but the category of extracts and oils stumps many home chefs.
An extract is a concentrated flavoring that adds a given flavor (vanilla, cinnamon, etc.) to food without adding bulk or volume to the recipe, so you can change the flavor as much as you like without changing the fundamental structure of the recipe. Some extracts are made through distillation, concentrating down a weaker solution. Others are made by adding a flavoring to alcohol. The alcohol extracts work well for baking because the alcohol reliably evaporates during cooking, leaving behind only the flavoring.
Oils, or essential oils, are much more concentrated than extracts are and are made by extracting the oils (yes, “essential oils”) from a nut, seed or plant. Lemon oil, for instance, is particularly common and is often used as a substitute for fresh lemon zest. In many cases, you will only need a few drops of a oil where you might have used a full teaspoon of an extract. It is made by squeezing and collecting the oil directly from the rind of a lemon. As long as you don’t go overboard on the oil, it can be substituted into many recipes for extract, but because it is an oil, there is the possibility that the will throw off the chemistry of a given recipe if whatever you are working with is very sensitive to the addition of any fat.