and yes, you will receive a CD. The FrontPage 2003 offer is for the full version, so you have no need to worry about functionability.
Frontpage extensions are server-side components that are installed by a web host. The extensions enable the more advanced FP facilities - such as web-forms, hover buttons,discussion forums and animated test effects - to work. You can publish a FrontPage site to a server without the extensions, but the special components won't work.
I wouldn't delay too long with this decision, the 1&1 promotion is only valid while stocks last, and it's been running a while now.