Webpack 3.5.5 debugging in chrome developer tools shows two source files. One under webpack:// and other under webpack-internal://

google-chrome express google-chrome-devtools babeljs webpack-2

You can configure the source maps using Webpack's devtool property. What you want is devtool: 'source-map'(source). This will only show you the original source code under webpack://. Note that there are other options that might be more appropriate for your use case.
["node_modules"] is in the default value for resolve.modules. However, if you specify resolve.modules you need to include "node_modules" in the array. (source). It seems strange that you specify "src" and "testApplication" in resolve.modules. If you have local source files you should require them using relative paths e.g. require("./local_module"). This should work without having src in resolve.modules
Specifying node_modules in resolve.modules is not responsible for any slow down (see 2.). There are many possible reasons the slow down. E.g. maybe you are erroneously applying babel to the whole node_modules folder?

google-chrome express google-chrome-devtools babeljs webpack-2

It seems to be resolved (or at least greatly improved) in Chrome 66.

CodeHunter