Application is one of those loose terms used to describe software programs.  An application can be a word processor, and email program, a web browser, or many other things.  Pretty much and program you run on your computer can be considered an application.

Creating good applications take time, effort, and good design.  Applications are really easy to criticize because there are so many good ones around.  If an application isn't great, the we tend to think that it's poorly written.  This is in stark contrast to the web where there are so many poorly written sites, we tend to accept sites based on their content.

Creating great applications isn't an easy thing to do.  It requires large amounts of testing to work out all the bugs that will be discovered by the end users, and even then, many are bound to slip through.  The web isn't necessarly easier to develop for, but the user model is already there, so the learning curve for a website is basically zero.  On the other hand, an application requires the user to learn a whole new interface.  Even if it is well designed using existing standards, the user is bound to face a steeper learning curve than a websites.

I question Microsofts decision to change the Office interface.  They claim that the new task driven toolbar will increase productivity, but teaching an entire generation of computer users, many who are not all the bright, to use a new interface is a risky business.  Even if it does turn out to be much better and make employees more productive, the upfront time and cost to purchase, install, and train on a new system may not seem like a worth while venture for many businesses.

Still, I have faith in Microsoft.  If they set a standard, people will pretty much be forced to learn it.  I can' t see Office loosing much of it's market share to (what) competition.  I guess we'll have to wait and see what the future brings.  At the very least, I'm excited for the XML based formatting for the new Office 12.  Way to imbrace an open source future Microsoft!