What does 'IISReset' do?

IISReset stops and restarts the entire web server (including non-ASP.NET apps)
Recycling an app pool will only affect applications running in that app pool.
Editing the web.config in a web application only affects that web application (recycles just that app).
Editing the machine.config on the machine will recycle all app pools running.

IIS will monitor the /bin directory of your application. Whenever a change is detected in those dlls, it will recycle the app and re-load those new dlls. It also monitors the web.config & machine.config in the same way and performs the same action for the applicable apps.

It operates on the whole IIS process tree, as opposed to just your application pools.

C:\>iisreset /?

IISRESET.EXE (c) Microsoft Corp. 1998-1999

Usage:
iisreset [computername]

    /RESTART            Stop and then restart all Internet services.
    /START              Start all Internet services.
    /STOP               Stop all Internet services.
    /REBOOT             Reboot the computer.
    /REBOOTONERROR      Reboot the computer if an error occurs when starting,
                        stopping, or restarting Internet services.
    /NOFORCE            Do not forcefully terminate Internet services if
                        attempting to stop them gracefully fails.
    /TIMEOUT:val        Specify the timeout value ( in seconds ) to wait for
                        a successful stop of Internet services. On expiration
                        of this timeout the computer can be rebooted if
                        the /REBOOTONERROR parameter is specified.
                        The default value is 20s for restart, 60s for stop,
                        and 0s for reboot.
    /STATUS             Display the status of all Internet services.
    /ENABLE             Enable restarting of Internet Services
                        on the local system.
    /DISABLE            Disable restarting of Internet Services
                        on the local system.

IISReset restarts the entire webserver (including all associated sites). If you're just looking to reset a single ASP.NET website, you should just recycle that AppDomain.

The most common way to reset an ASP.NET website is to edit the web.config file, but you can also create an admin page with the following:

public partial class Recycle : System.Web.UI.Page
{
    protected void Page_Load(object sender, EventArgs e)
    {
        HttpRuntime.UnloadAppDomain();
    }
}

Here's a blog post I wrote with more info: Avoid IISRESET in ASP.NET Applications