configuration setting is applied to specific file/folder 
with appropriate "Path" attribute.
e.g
1)applying setting to everything under System.web
<location path="Administrator" > 
 <system.web>
    <authorization> 
          <deny users="?" />
          <allow roles="Administrator" /> 
          <deny users="*" />
    </authorization>
 </system.web> 
</location>

2)applying setting to specific directory called "folder1"

<!— Configuration for the "folder1" subdirectory. -->
   <location path="sub1">
      <system.web>
         <httpHandlers>
            <add verb="*" path="folder1.Scott" 
type="folder1.Scott"/>
            <add verb="*" path="folder1.David" 
type="folder1.David"/>
         </httpHandlers>
      </system.web>
   </location>