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What makes the "Create Virtual Directory" ?
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Basically the IIS Express you will use to test your application, it is a simpler version and optimized for developers. Already the IIS Local you will use to leave your application in production.
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Virtual directory is what points to another folder, to be used on the server for example, but located elsewhere. Basically when adding one you can select any source, so having different projects there, from different places, basically every type of server uses a virtual directory, even apache, only there is more manual things.
– Guilherme Nascimento