JBoss supports the ability to deploy regular J2EE archives (WAR files, EAR files, EJB JAR files, etc...) as a single archive file or as an exploded directory. Using the directory form for deployment can make it much easier to edit deployment descriptors and adjust dynamic content (such as JSPs) during development. However, you cannot deploy exploded applications in the farm directory when working in a clustered configuration.
To explode a J2EE archive, unzip the archive to a directory that is named the same as the archive file. As long as the directory name has the correct extension (.war, .ear, etc.) JBoss will deploy the directory normally. Note that expoded directories can be nested. Your MyApp.ear directory could contain a MyWebApp.war subdirectory for a bundled web application.
In a normal archive, JBoss will redeploy the application when the archive is updated. To force JBoss to redeploy an exploded application simply update the top level descriptor. (web.xml, application.xml, etc.)
To see an example of an exploded deployment, look at deploy/jmx-console.war in the default server configuration.