Begin by opening the "Internet services manager", this can be done several ways but as it can be vary slightly depending on whether you are using Windows 2000 or Windows XP Pro we will use the method that works with both.
Click the start button and select "Run", in the run dialog box type "inetmgr" without the quotes and the following window shown in the following image should open.
Next expand the tree nodes until you see your site folder, right click on your site folder and select "properties" from the context menu and the dialog shown in the following image will appear, click the "Create" button an it should change it text to "Remove", you have now set your site as an IIS application and clicking ok will close the dialog and save your settings.
Next : Defining the Database connection