Simply runs your test command found in the package.json of your workspace root folder.
In a test file use the keyboard shortcut ⌥+⌘+t and your test will run.
By default this extension will use read your current directory and determine if you use yarn or npm to run your tests. It assumes if any file with yarn (ie yarn.lock) is present that you use yarn, otherwise it will assume you use npm.
However if you find yourself in a situation where your project uses npm but you still want to use yarn to run your tests (or vice-versa) you can set the package manager in your vscode settings with the test-runner.packageManager