Legacy proxy server support. Extensions don't benefit yet from the same proxy support that VS Code supports. You can follow this issue's development in GitHub. Similarly to extensions, a few other VS Code features don't yet fully support proxy networking, namely the CLI interface.
Alternatively you can specify proxy user (mostly domain user with password), that is allowed to communicate via network. This can be easily achieved by setting two common environment variables: HTTP_PROXY and HTTPS_PROXY. These variables are automatically used by many open-source tools (like conda) if set correctly.