You can split your configuration to multiple files and you can also create 1 or more virtual directories in IIS for a single Physical directory. However this means you would have 2 instance of your web application available on your web container but both utilizing the same configuration files no matter they are split on multiple files.
You can also have a web.config file for each sub directory in your web application and each file can override its parent web.config settings (Not every thing is overridable).
To create a virtual directory on the run dialogue box type inetmgr... The IIS Manager will open up. Right click on the default web site if on the client OS and select New then Virtual Directory. Virtual Directory setup wizard will appear. Follow the simple steps it has to offer and you end up creating 2 virtual directories for a single source directory.
If you just want to have different functionalities (i.e. pointing to different database) for each web app instance then consider web.config configuration sections instead.. and have database connection strings saved against a key in app settings and load the specific database connection string considering which resource is accessed.
Have a look at the article on this location: