machine. config is configuration file for all the
application in the IIS.
web.config is a configuration file for a application or folder 

machine.config for machine level configuration.
web.config for a application/folder level configuration

web.config files apply settings to each web application,

but

machine.congig file apply settings to all asp.net 
applications.

web.config file for only use single web application but 
machine .config use whole application

it supports configuration file section for all application 
in IIS -----> machine.config


contains security policy ----->web.config

Configuration files are used to control and manage the 
behavior of a web application.
 Machine.config
 Web.config
Difference between Machine.Config and Web.Config?
Machine.Config:
 This is automatically installed when you install Visual 
Studio. Net.
 This is also called machine level configuration file.
 Only one machine.config file exists on a server.
This file is at the highest level in the configuration 
hierarchy.
Web.Config:
This is automatically created when you create an ASP.Net 
web application project.
 This is also called application level configuration file.
 This file inherits setting from the machine.config
 Links- http://www.go4expert.com/forums/showthread.php?
t=6704
http://forums.asp.net/t/1117776.aspx

when you want to set some settings/properties common to all
the applications falling under same web server then go for
machine.config. If you want apply the settings individually
to each web application then go for web.config.