What is a Web Application?
A web application can be thought of as a type of a website that mostly uses software code written by software engineers to accomplish a specific purpose. There is less emphasis on the design of such a website and most of the focus is on the actual code that operates the entire website.
Facebook can be thought of as a Web Application because most of the things occur "behind the scenes". The visitor of Facebook is presented with the "news feed", which is an output of computer code that is programmed to display messages coming only from that person’s friends.
Another example of a web application is ClubPenguin.com, which is a social network for kids. Kids are encouraged to create their penguin character, change its color and head out into the virtual world to socialize with other kids all around the world and play interactive games.
I personally enjoy building both, static websites that are slightly dynamic as well as web applications. An example of a web application I programmed myself is AuthenticSociety.com which can be categorized as a social network web application.
Web applications commonly use more than just the website template. They interact with a database which can store user accounts and user profile data. This data is then represented in a template reserved for that specific "view". You may have probably noticed this about Facebook that it has different views for looking at personal profiles as well as viewing your personalized news feed. The template of the site changes to display different types of data from page to page.
Because templates of a web application are considered to be distinctively separate elements of the website from its computer code, programmers often separate the code from the web templates. This is called Model-View Controller design pattern. This basically means that the code will be regarded as a separate part of the program from its view (or its web template).
As you can imagine developing a web application can be intricately complex process. To develop a website such as ClubPenguin entire teams of programmers and web developers are formed. Web applications are often funded by investors but can also be developed "on their own time" by people who are genuinely interested in building something interesting and useful.