What are the differences between a cover letter and an application letter?
Good question, and has been something that I have been thinking about also.

Digging around, I found a few articles that may be of assistance, This eHow article (Even though it is more trained towards work, rather than academia), and thi about.com article.  

Both links state that there are subtle differences - specifically, an application latter explains what qualifies you for the position/study, and the cover letter goes into more detail as to what qualifies you and explains your interests in the position/study.

I hope this helps (and best wishes with your application and studies!)