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Visual Studio opens / creates the web application as a folder, and uses the built-in ASP.NET Development Server to host the Web site.

this mode does not support running ASP.NET applications in Integrated mode, and it does not support application technologies other than ASP.NET (such as PHP, ASP, CGI, etc).

Local IIS. When using this option, Visual Studio allows you to publish your application files to a local IIS 7.0 Web site or application. You can also use the dialog to create new IIS 7.0 applications or virtual directories to publish your files to.

You can also map the Web application project directory as a virtual directory on the local IIS 7.0 installation by opening the project Properties, clicking the “Web” tab, and using the “Create Virtual Directory” button.  You can use the “Create Virtual Directory” option as a quick way to host your Web application locally on IIS without going through the “Publish Web” option.

IIS 7.0 architecture,

The URL-rewrite module is a native-code module that plugs into the request processing pipeline at the Pre-begin Request or Begin Request stages and then evaluates the requested URL path by using a set of rewrite rules.

ASP.NET routing is a request dispatching mechanism that allows developers to associate a certain URL with a handler that can process requests made to that URL.

ASP.NET routing is implemented as a managed-code module that plugs into the IIS request processing pipeline at the Resolve Cache stage (PostResolveRequestCache event) and at the Map Handler stage (PostMapRequestHandler).