I think for a while, Google sort of hoped to turn Chrome extensions into something like actual apps. They seemed to support stuff like making desktop icons for them, opening them in windows that seemed to be independent from Chrome, making them the only way to make something that seemed like a real app on Chromebooks, etc. With all of that in place, it seems to make sense to let people pay charge/pay for them. Then I guess they just kind of got tired of it, as Google tends to do, and started dropping various parts of that system.

Probably the only reason they bothered to post a notice and write a really lame migration plan is that a decent number of developers were making money from it and would pitch a fit if it just disappeared.

Whatever you would use a browser extension to do now, there was probably a standalone application to do the same thing before.

The original vision of the web didn't just have "sites with servers" and "consumers with browsers", but rather tons of potential independent "User-Agents" that would perform tasks on behalf of people. The consolidation of the web into just browsers, and subsequent flipflopping between creation and destruction (similar to the EEE cycle MS has employed), has killed whatever of that vision might have flourished.