If I have a category of optional assignments set up on Canvas, let's say it's its a category worth 5% for extra reading, as an example. This is extra credit. Some of the students do the extra reading so they get a hundred in that category, worth 5%, and some students don't do it. The students who don't do it, don't get a 0, it's just left blank, so they will only have 95% worth of grade at the end of the year. Does that affect them negatively or will Canvas re-evaluate the math for those students?

If you are using a weighted gradebook, then a student will never have 95% of a grade. Extra credit is only considered extra credit

afterthere is already more than 100% in the assignment groups that have assignments with grades.What Canvas does when there is less than 100% of the score possible is to scale the other to be worth 100%. If your students have assignment group weights that add to 95%, then it will divide the score by 0.95 to make it out of 100. What that really means is that if your exams are supposed to be worth 50% of the grade, what you're describing will make them worth 50%/0.95 = 52.63% of the grade.

The way you have described what is going on is not extra credit in Canvas.

To have an extra credit category, you need to have the weights for the assignment groups with grades add up to more than 100%. If you have assignment groups without grades or you have students with missing or excused grades for every assignment within an assignment group, that group is not counted towards the total.

For example, if a final exam is in a category worth 20% of the grade but there is no grade until the end, then students will have their grade figured out of 80% of the grade until that final grade goes in. If there is an extra credit category worth 5% then you have 85% of the grade but it is not considered extra credit, no matter what you call it, because 85% is less than 100%.

There are other ways to do extra credit. Here's a lesson from the Canvas Instructor Guide about extra credit: How do I give extra credit in a course?