If you create an App Registration in Azure AD for a 3th party application you might want to limit the rights of this 3th party application.
For example you have a 3th party application which you want to access a specific mailbox to read mail from you would like to limit access to this specific mailbox only. To make sure that the application is not able to read the mailbox content of the CEO you need to implement an Application Access Policy.
Note: You need to have an Azure AD license to use Application Access policy’s.