If you want an idea of what it might be able to do, pay a visit to one of these sites:
But usually, these are only used by so called "script kiddies" and no professional website or organization would purposly crash your browser or cause you any dis-satisfaction.
If you want to see an example, on this site a Java applet is used to run IRC (Internet Relay Chat). Alot of the games and such will run from applets which are basically stand alone programs execuable by your browser. Im not sure if all applets require permission to run, but many do. That kind of gives you an idea of the difference between them.
Just a note: if you scroll towards the bottom of the entire list, you'll see "Allow Scripting of Java Applets" - from there you can select if you would like Java applets to be recognized.
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