What is a Subdomain?
A subdomain is just as it sounds, a sub or second-level of a domain. A standard domain looks as follows: www.mydomain.com. A sub domain would be http://prefix.mydomain.com. Subdomains do not take on the “WWW”.

Subdomains will rank as well as regular domains however Search Engines will treat each subdomain as a new, individual site. This will mean new work on building PR and links.

It is a good idea to adopt subdomains if site is large and convoluted although there is alot of extra work involved in terms of SEO in order to get that subdomain ranked well.

Each subdomain should reflect a section of the site (used as an alternative to folders) but If the site is easy to navigate folders will be a better option as any back links, page rank optimisation can be inherited from the main domain without having to start again.

An advantage of subdomains is that If you were to submit to directories (i.e. Dmoz) you could submit each subdomain as its own individual category and not get penalized.

However it is worth noting that If a subdomain becomes banned will it will affect the main domain
• Don’t create pages with malicious behaviour, such as phishing or installing viruses, trojans, or other badware.
• Avoid “doorway” pages created just for search engines or other “cookie cutter” approaches such as affiliate programs with little or no original content.
• If your site participates in an affiliate program, make sure that your site adds value. Provide unique and relevant content that gives users a reason to visit your site first.
If you determine that your site doesn’t meet these guidelines, you can modify your site so that it does and then submit your site for reconsideration.