Applied Arts are arts within functional items (as opposed to Fine art, art which "has no purpose", such as poetry, paintings, etc.)
Applied art is a notion which varies greatly according to space and time. In medieval Japan, for instance, only a generyl conception of the "beautiful" existed, negating the difference between "fine Arts" and "Applied Arts".
Applied Arts were considered inferior to fine arts, and only a feature of good quality craftsmanship. In the beginning of the 20th Century, applied Arts grew in popularity. Architects started designing objects of everyday life (mirrors, cups, chairs...) in accordance to their style (Modern Style, Art Deco).
One very famous school of Applied Art was the Bauhaus.