If you aren't familiar with the IIS7 Remote Administration Tool, you might want to start by referring to these two earlier posts:

IIS 7 Manager For Remote Administration - Installing and then connecting to a site

How to use the Remote Administration Tool to recycle your application pool

Another nice feature of the IIS7 Remote Administration Tool is that it will let you convert a folder on your website to an "application" so that it can have its own web settings and configuration.

How do make this change is not obvious though. Just like the "recycle app pool" feature seems to be a bit hidden, so is the "convert to application" setting. Here it is:

Something to be aware of is that the process to convert an application back to a standard folder, well, it doesn't seem to exist from within this tool. Here is the option you are given...

It states "Delete Application and Content" - and it means that quite literally. It doesn't just change remote the application settings but literally deletes the setting from IIS and the folder and content from the server. Before selecting that task, be totally sure that's what you want to do.