Difference between "Start application pool immediately" and Start Mode AlwaysRunning

Had the same question as the original poster but could not find a concise answer, below is the analysis from my research.

Application Pool != Worker Process (w3wp.exe)

• Typically we see a single w3wp.exe instance running for each application pool but technically we can configure a web garden with multiple w3wp.exe instances running.
  Web gardens... are they good or bad or what?
• A worker process executes in the context of a single application pool.

Start application pool immediately = Automatic or manual start
Basic Settings...

• Enabled
  IIS will automatically start the application pool.
• Disabled
  Someone needs to manually start the application pool.

Start Mode = Worker process start mode: immediately or on demand
Advance Settings...

• AlwaysRunning
  If the application pool is running immediately start up the w3wp.exe process.
• OnDemand
  If the application pool is running start the w3wp.exe process when there is an inbound application request.
  
  

Additional Notes

• IISRESET /stop
  Stop IIS, application pool(s) and worker process(es) (w3wp.exe instances).

• IISRESET /start
  Start IIS and the above configuration settings will determine when the application pool(s) and worker process(es) (w3wp.exe) start up.
  
  

• IIS Manager Stop Web Server GUI action
  Stop the web server from handling inbound requests but will not stop the application pool(s) or w3wp.exe process(es).

• IIS Manager Start Web Server GUI action
  Start the web server to handle inbound requests but will not start the application pool(s) or w3wp.exe process(es).
  Menu action to start/stop a Web Server
  
  

• IIS Manager Stop Application Pool GUI action
  Stop the w3wp.exe process.

• IIS Manager Start Application Pool GUI action
  AlwaysRunning vs. OnDemand will determined when the w3wp.exe process starts up.
  Menu action to start/stop an Application Pool

It looks like "Start application pool immediately" controls whether the application pool is "Started" when the World Wide Web Publishing service is started. But a "started" application pool is not necessarily running (meaning there may not be a w3wp process).

If an app pool is not "started" then you will get a 503 when you hit a site that uses that app pool.

If an app pool is "started" then a w3wp process will service your request. "Always Running" means that when the application pool is started a w3wp process starts. OnDemand means the w3wp process spins up when you first hit a website that is associated with the application (there is a delay while the w3wp starts).

Bit late to respond but I will add my findings as I looked around to find asnwer to this same question.

"OnDemand": IIS will launch worker process when first request for Web application is received. "AlwaysRunning": IIS Launches the worker process for the application pool as soon as IIS is started OR when application pool is created.

Per IIS 8 What’s new – Application pool settings:

Start Mode

A few web applications take a significant amount of time to start up. IIS by default only launches a worker process when the first request for the web application is received. So for the web applications that require a longer time to initialize, users might see slow responses.

For such applications it is a good idea to launch the worker process as soon as IIS is started. The application pools have a startMode setting which when set to AlwaysRunning launches the worker process for the application pool as soon as IIS is started.

IIS 8 provides you this setting in the Application Pool Settings UI.