“There is no such thing as a free lunch.”

https://en.wikipedia.org/wiki/No_such_thing_as_a_free_lunch

And this applies to VS Code and many of its extensions. You agree to the licensing conditions, and you pay with your data.

VS Code source code is MIT licensed, but the binaries you can download and install have telemetry built in: you are giving Microsoft your usage data in return for using VS Code.

If you are concerned about this, and looking for free and libre open source binaries of VS Code, then have a look at MIT-Licensed VSCodium.