Charting Fibonnaci

So i am demoing on a MT4 platform and in the computer age it is very easy to use Fibonacci as oppossed to manually charting this all out by hand, right? Well i am still confused. According to BabyPips when identifying Fib retracement levels you identify the swing high and swing lows:

A Swing High is a candlestick with at least two lower highs on both the left and right of itself.

A Swing Low is a candlestick with at least two higher lows on both the left and right of itself.

This really makes no sense at all. What constitutes a lower high and a higher low? So far i have just been using 1 hour charts and choosing the lowest shadow of a candlestick on the chart as a start point and the highest shadow of a candlestick as the end point and that is my fibonacci. Is this correct? Or is there a better explanation of swing highs and swing lows candlesticks somewhere?

Thanks for the quick reply Hob!. Two questions: Why did you move the Fib levels along as the chart progressed? You could have used the highs all the way on the left hand side of your chart?

Also is this a Fib Retracement or Extension? I am somewhat confused on the difference between the two. My MT4 platform only has Fib Retracements so that is what i use. Should i be using the extensions as well?