From a web developer perspective:
A virtual directory is an IIS 5 container (Windows 2000 and earlier) for HTML content. You can also configure a virtual directory to interpret Active Server Pages (ASP) scripts and / or run Common Gateway Interface (CGI) applications. The virtual directory CANNOT host the ASP.Net web application.
The application container type was introduced with IIS 6 (Windows XP / Windows Server 2003 and later). It allows you to host ASP.Net web applications.
Mark Teague Oct 13 '17 at 20:58
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