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  1. Update Extension.  Now you can assign the the phone/device to a different extension.
    OR: you can simply delete the old extension, skipping steps 2-5 above.

  2. Click on the new extension number, or add an extension.

  3. Under "Phones / Devices", select the available device.
    Important: Never assign an extension to a device that's already assigned to an extension.*

  4. Update extension.

  5. You will need to reboot the phone for the extension number on the display to reflect the change.  However, this is cosmetic; the changes have already taken effect.

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Also see the following article.  This is is useful if the phone will not update the extension number on the LCD:
How to: Change Extension Numbers