In IIS 7 / 7.5, you have an option to create a Virtual Directory and Applications.

What is a Virtual Directory?

Virtual Directory is a directory that is mapped to a local physical directory or a directory on a remote server. A Virtual Directory will have it's code executed in the same worker process as the parent process. The application pool of the Web Site and Virtual Directory is the same.

What is an Application?

An Application is identical to the Virtual Directory except that you have an option to run an Application in a different application pool.

NOTE: this is how the above screenshots looks like in applicationhost.config

<site name="Default Web Site" id="1" serverAutoStart="true"> 
  <application path="/"> 
    <virtualDirectory path="/" physicalPath="%SystemDrive%\inetpub\wwwroot" /> 
    <virtualDirectory path="/sample virdir" physicalPath="C:\inetpub\ftproot\contoso\jfine" /> 
  </application> 
  <application path="/sample app" applicationPool="sample app"> 
    <virtualDirectory path="/" physicalPath="C:\inetpub\ftproot\contoso\bmayer" /> 
  </application> 
</site>

Hope this helps.
Vivek Kumbhar