As per my understanding I can specify the differences as follows:
Production Ruleset: A production ruleset is a ruleset that contains rules that you can modify after the application is deployed. It can be briefed up with an example as follows: Suppose, you are working on an application which involves migration of data from previous system. So, here for all the Data Migration logic, we can make use of a dedicated ruleset which can be said as Production ruleset which might ultimately can also be modified once the entire application is live in prod environment.
Application Ruleset: An application ruleset is a collection of rules that identify the components of an application. The Pega 7 Platform automatically inserts the initial application ruleset values in this section when you generate your application by using the New Application wizard. In simple terms, we can specify that the day-to-day development work on our application is assembled in this particular ruleset and this needs to be locked before deploying to higher environments.