What is Application Pool

When you run IIS 6.0 in worker process isolation mode, you can separate different Web applications and Web sites into groups known as application pools. An application pool is a group of one or more URLs that are served by a worker process or set of worker processes. Any Web directory or virtual directory can be assigned to an application pool.
Every application within an application pool shares the same worker process. Because each worker process operates as a separate instance of the worker process executable, W3wp.exe, the worker process that services one application pool is separated from the worker process that services another. Each separate worker process provides a process boundary so that when an application is assigned to one application pool, problems in other application pools do not affect the application. This ensures that if a worker process fails, it does not affect the applications running in other application pools.
Use multiple application pools when you want to help ensure that applications and Web sites are confidential and secure. For example, an enterprise organization might place its human resources Web site and its finance Web site on the same server, but in different application pools. Likewise, an ISP that hosts Web sites and applications for competing companies might run each companys Web services on the same server, but in different application pools. Using different application pools to isolate applications helps prevent one customer from accessing, changing, or using confidential information from another customers site.
In HTTP.sys, an application pool is represented by a request queue, from which the user-mode worker processes that service an application pool collect the requests. Each pool can manage requests for one or more unique Web applications, which you assign to the application pool based on their URLs. Application pools, then, are essentially worker process configurations that service groups of namespaces.
Multiple application pools can operate at the same time. An application, as defined by its URL, can only be served by one application pool at any time. While one application pool is servicing a request, you cannot route the request to another application pool. However, you can assign applications to another application pool while the server is running.

http://www.microsoft.com/technet/prodtechnol/WindowsServer2003/Library/IIS/cde42787-982a-478c-b319-e703b270d8ee.mspx?mfr=true