I just added the basic instructions to build and run the extension locally to the README, please check it out at GitHub - AlbertoPdRF/root-file-viewer: View ROOT files directly in VS Code!
The node_modules folder contains all the dependencies of a given project – there’s no need for these dependencies to get installed globally. Of course, this means that you can have several installations of the same library on your system, but this way it’s ensured that you always have the correct version of each one installed for each project. As you point out, these folders can grow huge, so a good practice (IMHO) is to delete them when you are not working on a project anymore, as installing all the dependencies again is quite straight forward if you need to