Application pool and AppDomain , both of them can provide isolations, but use different approches.Application pool use the process to isolate the applications which works without .NET. While AppDomain is another isolation methods provided by .NET. If your server host thousands of web sites, you won't use thousands of the application pool to isolate the web sites, just because, too many processes running will kill the Operating System. However, sometime you need application pool. One of the advantages for application pool is that you can config the identity for application pool. Also you have more flexible options to recyle the application pool. At least right now, IIS didn't provide explicit options to recyle the appdomain. An application pool is a group of one or more URLs of different Web applications and Web sites. Any Web directory or virtual directory can be assigned to an application pool. Every application within an application pool shares the same worker process executable, W3wp.exe, the worker process that services one application pool is separated from the worker process that services

Application domain is one in which an application runs and application pool is one which will be controlled by IIS. In IIS 4/5 we have only one application pool where as in IIS 6 we can have more than 2,400 application pools.