Application can do everything a JS app can do now. Examples include Gmail, Dropbox etc.. The browser would clearly show that it is an application, and to access platform APIs it would have to be "activated" / "run" (just click OK). The browser might ask for additional permissions if it tries to do something egregious (access camera, or, what's not possible today, open sockets etc.).
Documents can only use very limited javascript (if at all) for presentation purposes (like DHTML of the 2000s, or Google AMP). A lot of stuff will not be possible, like advanced tracking, silly stuff like access to light sensor / vibration, etc.. Examples of this would be newspapers, blogs, etc..