I have a dual monitor on my laptop and extend my desktop when displaying things like PowerPoint and video, etc. As you know, only certain programmes display through the second monitor when you extend your desktop. My questions is, how does the computer know what can be displayed and what can not be displayed through this second monitor output to a projector? Is there any way to configure these settings so that if I wanted to display all JPEGS, or TXT only, or a particular active window, etc.

It all depends on the Video card you are using or whatever your plugged into that helps give the 2 monitor option, check their websites for help.