The simple explanation is that no part of this extension can extend beyond the centre line between the two houses. This means unless your neighbour is putting a roof on it that has no protrusions, it will be impossible for the builder to build the roof without some part of it protruding into your side. Even if there is no guttering planned on the side that adjoins to you, have you ever seen a roof verge that doesn't stick out beyond the line of the brickwork below it? Even a flat roof has a bargeboard around it.
It is important that you sort this out now - it is very likely to impact your future ability to build such an extension yourself. If you is planning on draining the roof towards your side, definitely dissuade him - if you ever want a similar extension, both of you would end up with a 'contained' gutter at the bottom of a valley - these are notorious because if they leak, they leak into the actual property underneath.
In England and Wales all work around the boundary of a property is covered by the Party Wall Act and your neighbour should have served you a party wall notice. This does a number of things that you can read up about in this booklet.
http://www.communities.gov.uk/documents/planni ngandbuilding/pdf/133214.pdf
He hasn't done this so you could stop him dead until he complies. As well as the avoidance of protruding into your airspace, he has no right to protrude into your land below ground either. Generally this makes it impossible to build the wall on the actual boundary (because the foundations are wider than the wall they support and these must not protrude on your side either). Post again if you want further advice.