I’m not sure what you want explaining.
There are many ways of working using highlights, and a number of plugins designed to suit different approaches. The Extract Highlights plugin does most of this (links to note rather than header, so header has to be added yourself).
But it’s a different way of working.
Students in ancient days had books and some had highlighters. One tribe of that ilk drew a line down the margin, while the larger tribe highlighted specific words, phrases and paragraphs. I think this is the same difference in approach.