To create an application for a directory you should complete the following steps:

Procedure

1. Open the MMC (Microsoft Management Console) also called the Internet Services Management or commonly referred to as the IIS administration. 
   Windows XP Professional: Control Panel > Administrative Tools > Computer Management
   Node: Computer Management > Services and Applications > Internet Information Service > Web Sites > Default Website
2. You will see a list of snap ins, one of which will be called Internet Information Server. Under this you will see your server name, select this server to view a list of sites running on the server 
3. Select the site which contains the directory you wish to create an application on, expand the site listing and you will see a listing of all directories within the site. 
4. Right click and select properties for the directory you wish to create an application for. The directory tab will open and If a directory is not yet created you will see an "application" in grey text and a create button. 
5. Click the create button and an application will be created for the directory. 
6. You are now complete and can close the MMC.