Can we create custom lightning app right now in Developer org ?.
I could see "Lightning Experience ! New" in my Set up menu but I don't see a way to create lightning application yet.
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Yes. You can create a Lightning App right now in a Developer Org.
You need to enable My Domain first as first announced in this blog post. If you do not you will get an error "Lightning components require My Domain. Please contact your system administrator for more information." when you try to preview the App.
You can add your own custom code, custom components, existing components (e.g., ui: namespace, etc.).
You can then navigate directly to the app by going to the url in the format of
https://<myDomain>.lightning.force.com/<namespace>/<appName>.app. For example, https://mycool-dev-ed.lightning.force.com/c/demoApp.app, where demoApp is the name you gave the Lightning Application when creating it and the "c" portion is the namespace, with "c" representing a default namespace, indicating that your org has no namespace. If you are in an org with a namespace change the "c" to the namespace.
You may also want to create Lightning Components that can be used in the Lightning App Builder or to create a Lightning Page from the Lightning App Builder, which are both different topics which are detailed in the Lightning Components Developer's Guide. Also, in pilot, is the ability to use Components on Lightning Experience Record Home Pages.