I read that context.xml file (in Tomcat) is application specific. I have created two web projects from my netbeans IDE with Tomcat as the server.But I unable to find the application specific context.xml files. I have only found the context.xml inside the conf directory of Tomcat.

Where can I find the application specific context.xml files ?
I noticed the link in the other answer is for the wrong version of Tomcat. Here is the correct documentation:
http://tomcat.apache.org/tomcat-7.0-doc/config/context.html#Defining_a_context
As you can see the options are different now from previous versions. In my experience the most common is options 1: