<p>I have upgraded a MS Visual Studio Application from VS 2003 to VS 2008 (Targeting .NET 2.0). As part of the conversion process the wizard said I needed to take the additional step of Converting my Project to a Website by Right-Clicking and blah blah blah...</p>

<p>I didn't follow directions and the web application seems to be working fine.</p>

<p>My question is, should I be concerned about pushing this to a production system? What exactly is going on here?</p>

There are two types of web applications in ASP.NET: The Web Site and Web Application Project. The difference between the two are discussed here:
Difference between web site and web applications in Visual Studio 2005
Convert to Website allows you to convert a Web Application Project to a Web Site.
Visual Studio 2003 used the Web Application Project style, but initially VS2005 only supported web sites. VS2005 SP1 brought back Web Applications.
If you don't want to convert your project to a web site, apply SP1 if you're using VS2005. VS2008 can support either.