If you are new to SharePoint, and perhaps setting up your first web application, this nasty surprise might cause you to think that maybe SharePoint isn't for you. Or perhaps you set up a new farm and wanted to show somebody just how easy it is to create a new site, then the screen went dark, the error box popped up, and you got that sinking feeling. You've seen this before, but what was the cause?
This is what you get when you create a web application and select the "Use existing application pool" rather than the default, which is to create a new application pool. If you have not already created an app. pool elsewhere you will be offered the choice of the two built-in app. pools: "Classic .NET AppPool ()" and "DefaultAppPool ()". Note the lack of a user account between the parentheses. Pick either of those two and you will get the error message. When you click on the back-to-site link or cancel you will be dumped back on the application page and you will have to set up the application again.
If you already created another app. pool for another web application you can pick that and re-use it and you will be fine.