What is the difference between the two files and which does phpList use?
Firstly, phpList only uses config.php so if you change any settings, please do so in this file.
Why is there an "extended" file then?
config_extended.php is there as that has pretty much every setting you can change stored within it.
Ok, so how do I use it then?
If you wish to use the full configuration file, then rename config.php to config.old.php and then rename config_extended.php to config.php and use this file to make your changes.
Why have two files then?
Simple, config.php is there as basically "a quick start" file, this contains the minimum settings you need to set phpList up and if a setting is not set, phpList uses a predefined value that "fits most".
If your setup needs more tweaking, or you have specialised needs, then either (a) use the extended file, renaming as described above, or (b) copy and paste the relevant settings into the smaller config.php file