An altered chord is a dominant 7th chord with one or more of the following added extensions: b5, #5, b9, and/or #9.
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These added extensions give the V7 chord even more tension/dissonance because they're not in the diatonic scale (home key) of the chord.
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Altered chords are common in jazz harmony. The diminished, whole tone, altered (a mode of the melodic minor scale), and chromatic scales are all possibilities for improvising over an altered chord.