“DLL Isolation” is used when our application needs to have a specific version of a shared DLL for its functionality. This just copies the DLL into the same folder as the EXE that needs it.
Steps to Follow (Wise Package Studio):
1. On the Components tab in Setup Editor, right-click the .DLL you want to isolate.
2. From the right-click menu, select New > Isolated Component. The Isolated Component Details dialog appears where you pick a file for isolation from the feature that contains the component.
a. If the key path for the current component is not an .EXE, then the drop-down list shows all .EXEs in the containing feature that are key paths of .DLL files.
b. If the key path for the current component is an .EXE, then the drop-down list shows all files from the containing feature that are key paths other than the current component.
3. From the Associated File drop-down list, select the .EXE you want to assign to this .DLL.
4. Click OK.
The limitation is that we can only have one version of the DLL loaded in memory at a time. I.e., App A loads DLL version 1 and then App B tries to load DLL version 2 but can’t. App B ends up hanging or blowing up.
Reference: WPS for Newbies