There is also a great MSDN article on this: http://msdn2.microsoft.com/en-us/library/aa730880(VS.80).aspx. Scroll down to the section "Comparing Web Site Projects and Web Application Projects".
In addition to the articles above, one thing I dislike the web site project is VS always put the solution file (.sln) is inside the My documents folder. I like to put the solution file in the same folder as the web site in. Here is the simple work around to do this:
- Create a blank solution file first (file -> new project -> other project types -> virtual studio solutions -> blank solution).
- Add the website in the solution (right click the blank solution -> Add new website).