what is the difference between System exceptions and Application exceptions?

All exception derives from Exception Base class. 

Exceptions can be generated programmatically or can be generated by system. 

Application Exception serves as the base class for all application specific exception classes. It derives from Exception but does not provide any extended functionality. You should derive your custom application exceptions from Application Exception. Application exception is used when we want to define user-defined exception, while system exception is all that is defined by .NET.