When you're first getting started with your domain, you might think of yourself as owning a small "territory" of the Web. Everything you place in your public folder on the server becomes available for anyone on the Web to see.
If you're just putting up a handful of static, HTML pages which you want to make available to colleagues, friends, or family by sending them links, then working with this large, unorganized space may work. But as soon as you get to the point where you want to organize your site, you're going to need a new strategy.
Consider this scenario: you want to have a personal blog on your new Web space, where you share pictures and short written pieces with family, friends, and colleagues. In addition, you're working on a large research project that requires you to build a Web-based repository of digital images related to your discipline. You want to use one application (say, WordPress) to manage your personal blog. For your research project, you've settled on another open-source application (Say, Omeka). Both of these are applications that need to be installed, but you can't just put them both at your main domain name -- if you did, both sites would quickly experience conflicts and errors. You need to create separate spaces for your different Web "properties."
There are two primary strategies for parceling up your Web space. You can create subdomains or subfolders. But before you can understand the difference, you need to first understand what we mean when we talk about your root domain.
Let's say you've registered a new domain with Rockaway Hosting called yourdomain.com. Anything that is stored at this core URL is considered to be at the root of your domain; nothing comes before the address or after the address. You can certainly decide that you simply want to have a single site on your Web host (say a blog running WordPress), and you can set that blog up at your domain's root. To get to your site in this scenario, users would simply go to http://yourdomain.com.
When you want to do more than just have a single site at the root of your site, you need to decide now to organize your space. One way to do so is by setting up subdomains.
You're already familiar with the concept of subdomains, even if you don't know it. Subdomains serve two purposes: they help to organize the site from a technical perspective, but they also serve as indications to the users that they are in a new/different space.
As you work on your site, you're welcome to create as many subdomains as you like, and in each subdomain, you can actually create a distinct, individual Web site.
The alternative for organizing your space with subdomains is to simply set up subfolders. These function much like file folders on your computer. Instead of creating a blog at blog.yourdomain.com you would place it in a subfolder called "blog" making the address yourdomain.com/blog.
Setting up subfolders is really easy. You can create folders on the fly when installing applications (like WordPress), and you can also manually create them in your file browser.
There is one particular issue you need to be aware of. Let's say you've installed WordPress to be your primary blog at http://yourdomain.com. Later, you decide you want to create another image gallery site on your site, and you want to place it at http://yourdomain.com/gallery. But, if for some reason you've already created a page on your WordPress site called "Gallery" then the url http://yourdomain.com/gallery will already be taken. If you try to create a subfolder of the same name, you'll get a conflict and errors.
Tips & Review
Subdomains are generally a cleaner, more elegant solution to organizing your site. You're less likely to get conflicts or errors. However, when using subdomains the process is slightly more complicated: You must create subdomains first before you can install anything in them.
Subfolders don't create as pretty URLs as subdomains, but they're easier to set up. They can, however, result in conflicts with existing Web pages.
As soon as you create subdomains or subfolders to organize your site, you need to consider how people are going to find them. If you've created a new primary blog at blog.yourdomain.com, and someone goes to just yourdomain.com, they won't see that new site. It is possible to set up a redirect to avoid this issue or you can also always create links from pages on one subdomain of your site to another.
If you really just need one site, sometimes installing at the root of your domain is the easiest thing to do, at least as you're getting started. You can always add more pieces to your territory later with either subdomains or subfolders.