While executing the solution I am getting an error that "Two or more objects have the same target location".
While checking the error I came to know that the error comes in Set Up project. The Set up project has one assembly file and other is project output file. Both these file has same DLL assigned with the same location.
What is the difference between Assembly file and Project Output file????
An assembly file is a dependent assembly that was automatically included when you included something else. A project output is the assembly produced by the output of another project in the solution. The setup project in VS is funny about that. I generally add all the project outputs first and then go in and manually delete the added dependencies (from the dependency node) that are also project outputs. This removes the duplicate entries that the build will complain about.
All in all the VS setup project lacks a lot to be desired. I'd recommend it only for simple setups. Switch to WiX or NSIS for anything else.