Web Application and Web Site Development Models
History
Visual Studio 2003 introduced the Web Application model. Visual Studio 2005 introduced the Web Site model and initially did not allow the Web Application model. Developers complained and a plug-in was released to allow Visual Studio to do Web Applications. Developer Express Supports only Web Site model originally but will add support in WDE 2008 SP1.
Web Application
A Web Application is project based. If the resource is not in your project it does not exist.
It must be deployed to be used.
Easier to work with Source Control since the projects expose source control syncronization files.
By default, all code is compiled, class files, code behind files, designer files, into a single assembly.
Content files, .ASPX and .ASCX, are compiled dynamically.
With Web Applications you have control over the names of assemblies.
Web Applications also have the ability to create a Web Application from multiple Web Projects.
Web Applications have the ability to run pre-build and post-build steps during compilation.
Web Site
A Web Site is folder based, if it is in the folder it is part of the Web Site.
Web Sites automatically deploy site using HTTP, FTP or File System.
Web Sites run on IIS, they do not run locally for HTTP and FTP.
If you specify local file system the site will run with the local development server.
A Solution file gets created but does not have any information.
Web pages and code files are compiled dynamically. (There are precompile options)
Gives you the ability to open and edit any directory as a Web Project without a project file.
Ability to generate one assembly for each page which could result in a performance gain.