The Application Limit controls the number of running instances of the protected software on a single machine. Use Network Licensing to control instances across the network.
When the license is validated DeployLX checks to determines how many other instances of the software are currently running on the machine. If the total allowed has been reached, validation fails.
In ASP.NET environments, each website configured in IIS is considered a separate application. You can use this to control the number of websites on a single IIS server that can use the protected software.