There is a Microsoft-built plugin called Remote - SSH, which fits into a group called "Remote Development" that includes WSL and Docker versions. It basically runs most of vscode on the remote, and feels just as fast as local on a decent connection. Most of the heavy lifting is done on the remote so things like full project searches, or linting, etc not having to go through ssh to access the files.

I use it for almost all of my development. I launch an ec2 instance with my projects and all of my code and data stays in my dev vpc. I can connect from my laptop or workstation and I can spin up extra dev environments if I am working on multiple projects. Plus, since the projects usually involve a pretty big data set, i don't have to download that locally and it can be replicated quickly within the vpc for each dev environment.

The SSH extension even knows how to forward ports back and you can add/remove port forwards from the vscode ui.

Just the standard Remote-SSH

https://code.visualstudio.com/docs/remote/ssh

They are probably using "Remote - SSH" by the VSCode team. It was a big part of what convinced me to switch from Pycharm. That and being able to work on C++ code from the same tool.