Application
and ApplicationInstance.Application
are two versions of the same HttpApplicationState object.
From the HttpApplicationState reference:
A single instance of an HttpApplicationState class is created the
first time a client requests any URL resource from within a particular
ASP.NET application virtual directory. A separate single instance is
created for each ASP.NET application on a Web server. A reference to
each instance is then exposed via the intrinsic Application object.
To summarize:
Application
object is global to the web server.
ApplicationInstance.Application
object is local to the application the request refers to. (e.g. site or virtual directory application)
This is further explained in this blog post.