Can somebody explain briefly the differences between a "WSS Web Application" and a normal "IIS Website"? I have read that a WSS web application is a "special" IIS Website with WSS featured. I also know that the content of a web application is stored in an SQL Server Website(called the content database) whereas an IIS Website stores it on a hard disk on the server.
A point-by-point difference would be appreciated.
Well, an IIS Web Site is what you create to host pages/applications. Once the web site is done, it is your job to maintain the server and applications.
When you install MOSS/WSS, you get a site provisioning engine which has a lot of features. Basically, it is a web application using which you can create another web applications + lots more...
Think about WSS web sites as SharePoint web sites whose data is stored in SQL. Point by point difference would be pretty difficult since it is not an apple to apple comparison. In a nutshell, IIS Web site is a plain vanilla manually configured web site, SharePoint web application is something that you don't configure directly through IIS Console. Instead you use SharePoint Central Administration tool to configure it.
A SharePoint web application defines a web "service point" (located at a particular DNS address and bound to a specific port). However, it is aware of network load balancing and it "knows" that a particular URL request may be served by any web-front-end server in SharePoint farm.
Hence, the "web application" is actually a configuration description stored in "configuration database".
Each front-end web server is configured according to web application settings from config DB. Here, an IIS web site comes into play - a web application technically is a set of iis websites on all front-ends serving the same URL endpoint of sharepoint farm.
Each "extended" IIS website contains several specific virtual directories which are mapped to folders under "c:\program files...\12\", (e.g. "_layouts", "images"). Such site also has specific web.config configuration, since SharePoint adds itself as an HTTPHandler.