I got this working.
I have to treat the port as char device on guest and unix socket on the host and that too as client.

Thanks,
-Ravi.

From: "<Chunduru Venkata>", "Chunduru Venkata, Ravi" <schunduruvenkata@paypal.com>
Date: Wednesday, September 25, 2013 10:48 AM
To: "libvirt-users@redhat.com" <libvirt-users@redhat.com>
Subject: Re: [libvirt-users] virtio channel socket bind error

I am assuming source mode is for the host. Bind means server and connect would mean client.

The other part is still pending.
On host, when I run cat  it gives no such device or address 

Or a  python program to bind the socket (in my case /tmp/appl_port) it gives 
'unable to connect to virtio-serial port. Error: %s', error(111, 'Connection refused'))

Am I missing something?

Thanks,
-Ravi. 

From: "<Chunduru Venkata>", "Chunduru Venkata, Ravi" <schunduruvenkata@paypal.com>
Date: Wednesday, September 25, 2013 10:17 AM
To: "libvirt-users@redhat.com" <libvirt-users@redhat.com>
Subject: [libvirt-users] virtio channel socket bind error

Hi All,
  My intent is to make virtio unix channel work. I could configure the XML and launch VM and could see the port in /dev/virtio-ports

   <channel type='unix'>
      <source mode='bind' path='/tmp/appl_port'/>
      <target type='virtio' name='appl_port'/>
      <address type='virtio-serial' controller='0' bus='0' port='1'/>
    </channel>

When I see on the host, the unix socket is already binded and is in listening state.

echo "test this" > /tmp/appl_port
bash: /tmp/appl_port: No such device or address

netstat -nax | grep appl_port
unix  2      [ ACC ]     STREAM     LISTENING     15302258 /tmp/appl_port

1) Can some one please have a look and help me fix this.
2) if I don't set source mode to 'bind', it gets set to 'connect' in xml and VM fails to boot up. I would like to understand the different types of source mode.
Dmesg shows below denied message for connect mode.
84616.025345] type=1400 audit(1380129082.835:210): apparmor="DENIED" operation="capable" parent=1 profile="/usr/sbin/libvirtd" pid=9804 comm="libvirtd" pid=9804 comm="libvirtd" capability=29  capname="audit_write"

Thanks,
-Ravi.