Reposted from ServerFault, "Why add additional application pools in IIS?"
AppPools can run as different identities, so you can restrict permissions this way.
You can assign a different identity to each app pool so that when you run task manager, you know which w3wp.exe is which.
You can recycle/restart one app pool without affecting the sites that are running in different app pools.
If you have a website that has a memory leak or generally misbehaves, you can place it in an app pool so it doesn't affect the other web sites
If you have a website that is very CPU-intensive (like resizing photos, for instance), you can place it in its own app pool and throttle its CPU utilization
If you have multiple websites that each have their own SQL database, you can use active directory authentication instead of storing usernames/passwords in web.config.