The root / - is just a tree's root in memory. You can mount (attach) disk drives wherever you want on it. In TC's normal case, the root / is in memory. Extensions that you install are stored on some drive. The drive is then attached somewhere on the system. (say /mnt/hda2). After then, every extension is a virtual disk image itself. They are also mounted at /tmp/tcloop, and symlinked from there in the main memory /.
It might sound like a mess, but it's a quite handy way of doing things.
(in other more or less normal distributions, a disk drive is mounted at /)