ASP.NET is a Microsoft web framework used to create dynamic web pages and web applications. It allows code to be run on the server, separating code from HTML markup. Benefits include separation of code and HTML, graphical development environments, and state management. An ASP.NET file contains HTML, XML, and server-side scripts with the .aspx extension. IIS (Internet Information Services) is the web server that processes ASP.NET files, executing scripts and returning HTML to browsers. Developers create virtual directories in IIS to share project folders and deploy ASP.NET applications.