Test (website) ---------------->   c:InetPub
    SubDirectory ------------------>   ..Subdirectory
       gadgets (Web App) -----------------> ..Gadgets

$WebSiteName = “Test”
$virtualDirName = “subdirectorygadgets”
$appPoolName = “DefaultAppPool”
$VirtalDirHomePath = "c:InetPubSubdirectoryGadgets"

$iisWebSite = Get-WmiObject "IISWebServerSetting" `
                 -Namespace "rootMicrosoftIISv2"     `
                 -filter "ServerComment like '%$WebSiteName%'"
$virtualDirSettings = [wmiclass] "rootMicrosoftIISv2:IIsWebVirtualDirSetting"
$newVDir = $virtualDirSettings.CreateInstance()
$newVDir.Name = ($iisWebSite.Name + '/ROOT/' + $virtualDirName)
$newVDir.Path = $VirtalDirHomePath
$newVDir.Put();

$nvdir = $iisWebSite.Name + '/ROOT/' + $virtualDirName

$nvdir = $nvdir.Replace("", "/")

$v = Get-WmiObject -Class IIsWebVirtualDir -Namespace rootmicrosoftiisv2 `
                       -filter "Name='$nvdir'"

#Create WebAppliction
$v.AppCreate3(2, $appPoolName, 1)

SET webSiteName=Test
SET virtualDirName=subdirectory/gadgets
SET virtualDirHomePath=C:InetPubSubdirectoryGadgets

cscript %SystemRoot%system32iisvdir.vbs /create %webSiteName% %virtualDirName% %virtualDirHomePath%

cscript %SystemRoot%system32iisvdir.vbs /query %webSiteName%/%virtualDirName%

$root = [adsi] "IIS://localhost/W3SVC/1/ROOT"
$vDir = $root.Create("IIsWebDirectory", "SubDirectoryGadgets")
$vDir.AppCreate3(2, "DefaultAppPool", $false)
$vDir.AppFriendlyName = "Andy Test"
$vDir.SetInfo()

([adsi] "IIS://localhost/W3SVC").psbase.Children | ? {$_.psbase.schemaclassname -eq "IIsWebServer" } | select Path, ServerComment

Path                         ServerComment
----                         -------------
IIS://localhost/W3SVC/1      {Default Web Site}
IIS://localhost/W3SVC/2      {WHS site}