Activity (ViewModel)
The activity project is the connection between the application (logic) and the design (view) and can be called a view model. The project also contains information for descriptions and tooltips.
Design (View)
The design project contains the visible part of the activity (view) and is responsible for how the activity will look in the Designer. The XAML and the code-behind-class are stored here.
Test
With unit tests, you can validate the functionality of the activity and helps to avoid side effects when changes to the activity are done in the future.
Application (Model)
The application project contains the business logic of the activity; this includes interfaces to other services, databases or external systems. Therefore it is the backend of the activity.