Why is Visual Studio Code with the C/C++ extension a practical environment for IoT firmware development?

It is a free, lightweight, cross-platform editor that adds IntelliSense, code navigation, formatting and GDB debugging for C/C++ through an extension, and integrates Git.

Embedded C development can be done in a heavy IDE (Visual Studio, Eclipse) or a plain text editor (Vim, Emacs). VS Code sits between them: it is an editor, but extensions give it the IDE features that matter:

• Code editing: go to definition, peek definition, auto-complete (IntelliSense), code formatting. In a firmware project with hundreds of vendor headers this is how you find out what a function like gpio_set_level actually takes.
• Debugging: breakpoints, stepping, inspecting variables, core-dump analysis and raw GDB commands. With a hardware debug probe the same UI can step through code running on the microcontroller.
• Git integration and the ability to call external tasks, so the build and flash commands of a toolchain such as ESP-IDF can be run from the editor.
• Other languages via extensions, all free, open source and cross-platform.

The key point is that VS Code does not compile anything itself. It calls the external cross-compiler toolchain that produces code for the target chip, and a debugger that talks to it.

Go deeper:

• VS Code Docs — C/C++ for Visual Studio Code — installing the extension and a compiler, IntelliSense configuration and debugging.