jack Said..
System.Exception
If extending the base exception class with additional members, inherit from System.Exception. The name of such inherited classes should end with “Exception.” Properly, System.Exception should have been declared as abstract with a recommendation to be inherited only by concrete exception classes. Doing so would have avoided the question of which to use right from the start, and would have also helped MS with versioning. However, since things are what they are, in this situation it makes sense to inherit and extend System.Exception. The rule to tend towards a flat hierarchy wins. Inherit from System.Exception when creating a class which adds members.
System.ApplicationException
Applications often provide their own custom exception types (e.g. CmsException, SharePointException) which do not add properties or methods, but simply subclass System.ApplicationException with a new name. If more detailed exceptions are required for the application, they will then inherit from this base class. This makes it convenient to throw application-specific exceptions that can be identified distinctly inside a try-catch block. When doing the same for your own applications, inherit from System.ApplicationException.
For both System.Exception and System.Application, the rules are consistent in this way: they work with the Framework as it is, not as we would like it to be. Since Application Exception exists and is in common use, it would be a deviation to derive application-specific exceptions directly from System.Exception. So while you still won't catch Application Exception directly, you should certainly catch its descendants.
Difference between ApplicationException and SystemException is that SystemExceptions are thrown by the CLR, and Application Exceptions are thrown by Applications. For example, SqlException inherits from SystemException. Included here to make this list complete, there should not be any circumstances where one would need to inherit from SystemException. All exception derives from Exception Base class. Exceptions can be generated programmatically or can be generated by system. Application Exception serves as the base class for all application specific exception classes. It derives from Exception but does not provide any extended functionality. You should derive your custom application exceptions from Application Exception. Application exception is used when we want to define user defined exception, while system exception is all which is defined by .NET.