Difference between machine.config and Web.config

ASP.NET configuration files are XML-based text files--each named web.config--that can appear in any directory on an ASP.NET
Web application server. Each web.config file applies configuration settings to the directory it is located in and to all
virtual child directories beneath it. Settings in child directories can optionally override or modify settings specified in
parent directories. The root configuration file--WinNT\Microsoft.NET\Framework\\config\machine.config--provides
default configuration settings for the entire machine. ASP.NET configures IIS to prevent direct browser access to web.config
files to ensure that their values cannot become public (attempts to access them will cause ASP.NET to return 403: Access
Forbidden).
At run time ASP.NET uses these web.config configuration files to hierarchically compute a unique collection of settings for
each incoming URL target request (these settings are calculated only once and then cached across subsequent requests; ASP.NET
automatically watches for file changes and will invalidate the cache if any of the configuration files change).
http://samples.gotdotnet.com/quickstart/aspplus/doc/configformat.aspx