This option is very similar to valid_elements the only diffrance between this option and valid_elements is that this one gets added to the existing rule set. This can be very useful if the existing rule set is fine but you want to add some specific elements that also should be valid.
Example of usage of the extended_valid_elements option:
tinyMCE.init({
...
extended_valid_elements : "img[class|src|border=0|alt|title|hspace|vspace|width|height|align|onmouseover|onmouseout|name]"
});