A web application can be thought of as a type of a website that mostly uses software code written by software engineers to accomplish a specific purpose. There is less emphasis on the design of such a website and most of the focus is on the actual code that operates the entire website.
Facebook can be thought of as a Web Application because most of the things occur "behind the scenes". The visitor of Facebook is presented with the "news feed", which is an output of computer code that is programmed to display messages coming only from that person's friends.
Another example of a web application is Smartessay, which is an educational website for stduents, that need to buy different kind of works such as essays and dissertations.
Kids are encouraged to create their penguin character, change its color and head out into the virtual world to socialize with other kids all around the world and play interactive games. I personally enjoy building both, static websites that are slightly dynamic as well as web applications.