The Extended Reference Pattern is a MongoDB schema design pattern used to improve performance by reducing the need for JOIN operations. It involves duplicating frequently accessed fields from related collections into the main document, rather than embedding or referencing them. This approach eliminates duplicated data and reduces the number of JOINs required, resulting in faster reads and improved performance. The pattern works best when dealing with N-1 relationships, where one entity has multiple instances of another entity, such as orders to customers. By applying this pattern, developers can optimize their MongoDB schema for better performance and scalability.