How do I create a Web Application Project in VS 2008? How is it different from a "WebSite" project?
Project Types in ASP.NET
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The main difference is that Web application uses .csproj file which holds the information about all the files in the project. What difference does it make? Using web site model you can add new files without visual studio, since adding new files doesn't require csproj file modifications, but using Web application model you can not. I personally prefer Web application type.
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People have adequately identified many differences, but let me add this broader stroke:
Web Application Projects are architecturally consistant with the other project types in .Net, whereas WebSites deviate and really seem like a throwback to the VS 2003 days.
For this reason, my opinion is that WAP's are more elegant (especially when you have more than one project in a solution).
File--New--Project
instead of File--New--Web Site
It acts as a different container all together and the compile model is different.
ScottGu provided some details when they were first launched: http://weblogs.asp.net/scottgu/archive/2006/05/08/445742.aspx