There are two different ways of using your multiple displays. One is "extended desktop", best illustrated by the Arrange pane:

Displays are concatented along a shared edge, and each display contributes its display area to a larger "Extended desktop". The mouse moves freely across the "boundary" between physical displays, and can drag a window along. A window can be parked across the display boundary, with a portion on each display, and when scrolled, will scroll "the right way".
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The other way is an offshoot of Mission Control, where even on a single display you can have different working sets or "Spaces" -- each of which may be associated with certain Applications and Windows. Each "Space" is distinct, and has its own Menubar and Dock, and different spaces can be switched in and out.
The extension of this "Spaces" concept to MULTIPLE displays is called "Displays have separate spaces", and is controlled in mission control:

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