Application pools, URLs or groups of URLs served by one set of worker processes, have many benefits. They set boundaries that contain applications an prevent them from affecting applications outside of the pool. So if one application fails it won't affect other applications in other pools. They also help with security by restricting an applications access to resources in another pool. Additionally, application pools can be used to improve a sites overall performance if resource intensive applications are contained so they don't affect other applications.
Here's a look at Resource Pools in IIS 7.0: