MSDN covers Web Application Projects versus Web Site Projects in their documentation.
It highlights the differences between web app and web site projects such as:
- Web app projects store info about a project into a project file. Web site projects do not have a project file.
- Web app projects compiles a single assembly. Web site projects compile multiple assemblies (by default).
- Namespaces are added to pages, classes, and controls by default in web apps. This is not the case for web sites, although you can add namespaces to pages, classes, and manually.
- "Visual Studio provides tools for [web site project] deployment, but they do not automate as many deployment tasks as the tools available for Web application projects."