In some cases, you would need to add some custom functionality inside Magento flow, for those ones, Magento provide several events where you can insert your custom code in a custom extension. To do so, you need to perform the following steps:

• Create a new module xml file at app/etc/modules/Vendor_ObserverTestExt.xml
  
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  <?xml version="1.0"?> <config>    <modules>        <Vendor_ObserverTestExt>            <active>true</active>            <codePool>local</codePool>        </Vendor_ObserverTestExt>    </modules> </config>

• Create the following folder structure for your module:
  app/code/local/Vendor/ObserverTestExt/
  app/code/local/Vendor/ObserverTestExt/etc/
  app/code/local/Vendor/ObserverTestExt/Model/
• Create your module configuration file:
  On folder app/code/local/Vendor/ObserverTestExt/etc create a config.xml file with the following content:
  
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  <?xml version="1.0"?> <config>    <modules>        <Vendor_ObserverTestExt>            <version>0.0.1</version>        </Vendor_ObserverTestExt>    </modules>    <global>        <models>            <callobservertestext>                <class>Vendor_ObserverTestExt_Model</class>            </callobservertestext>        </models>        <events>            <sales_order_place_after>                <observers>                    <vendor_observertestext_model_observer>                        <type>singleton</type>                        <class>Vendor_ObserverTestExt_Model_Observer</class>                        <method>myObserverMethod</method>                    </vendor_observertestext_model_observer>                </observers>            </sales_order_place_after>        </events>    </global> </config>

  
  Notes:
  <callobservertestext> is a unique identifier of our observer’s folder, inside it, the tag <class> represents our observer folder, and the prefix of our observer class.

  <events> Here we are going to set up each event where we want to call a custom method (eg: sales_order_place_after). A nice cheat of all events is this one: https://www.nicksays.co.uk/magento-events-cheat-sheet-1-9/

  <vendor_observertestext_model_observer> This is a unique identifier of our observer, it’s very common to use the observer class name.
  Inside it, the <class> tag can be set as two different ways:
  * Class name: Vendor_ObserverTestExt_Model_Observer.
  * folderidentifier/filename: callobservertestext/observer.

• Create the Observer.php file inside app/code/local/Vendor/ObserverTestExt/Model with the following content:
  
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  <?php /** * Created by PhpStorm. * User: amper * Date: 12/02/17 * Time: 23:29 */ class Vendor_ObserverTestExt_Model_Observer {    public function myObserverMethod($observer) {        //$observer contains data passed from when the event was triggered.        //You can use this data to manipulate the order data before it's saved.        //Uncomment the line below to log what is contained here:        //Mage::log($observer);        Mage::log('We have just made an Observer!');    } } ?>

  
   
• Finally, lets clean cache, make a complete purchase order(just for this example, and to raise the extended event) and check out your log file in var/log.