In SharePoint context Web Applications are the SharePoint web sites we visit. In SharePoint every web application have a content database in SQL Server. A Content Database is automatically created by SharePoint when we setup a new Web Application.
“A Web application is comprised of an Internet Information Services (IIS) site with a unique application pool. When you create a new Web application, you also create a new database and define the authentication method used to connect to the database.”
“If you are in an extranet environment where you want different users to access content by using different domains, you might also need to extend a Web application to another IIS Web site. This action exposes the same content to different sets of users by using an additional IIS Web site to host the same content.”
Also you can find a great video from here.