Sub-domains are an extension of your domain.
A Sub-domain takes the following form: subdomain.example.com
In this case sub-domain is a third level domain, example a second level and com the first level domain.
Most domains you buy are second level domains. Anything to the left of your domain name is basically your property. You can add any number of third, fourth, fifth etc level sub-domains to your second level domain.
Sub-domains are often used for the following purposes:
1. Host a mini-site different from the main site ie de.yahoo.com hosts the German version of Yahoo.com
2. Redirect users to certain sections of a site ie finance.google.com redirects users to www.google.com/finance
3. Offer special services such as: downloads, images, videos, login etc
4. Name extensions such as: del.icio.us, con.firm.in
One question website owners often agonize over is whether to organize the site into various sub-domains, such as cars.example.com, bikes.example.com, motorcycles.example.com or into various directories such: exmaple.com/cars, exmaple.com/bikes and example.com/motorcycles.
Google and presumably other search engines treat each sub-domain as a separate website. So any high rank of one sub-domain has no effect on the other sub-domains or main website.
A high ranking directory, on the other hand, is beneficial for the whole website.
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