Now lets say there is an office building across the street at 124 Main St. You come into the lobby of that building and you discover that there are 10's, 100's or even 1000's of offices, all for different businesses. Each one has an address associated with it like Suite 412 (might indicate its office #12 on the 4th floor). So, now the address would be 124 Main St. Suite 412. The suite designation indicates a particular location at 124 Main St. A subdomain is the same type of addressing (for example - suite412.124mainst.com or www.124mainst/suite412).

A subdomain doesn't (or shouldn't) cost anything to set-up. On the other hand, a private domain (like actual real estate) has maintenance costs. Primarily, registration fees.

With a subdomain it is usually much easier to pick the name you want for your address. With a private domain you may have to slog through many variations of your name to come up with a domain that is available.

Free hosting plans are subdomain accounts. With the great price of "free" usually comes pop-ups, banners, etc. advertising things that you may or may not want on your site or associated with your business or the ads may compete directly against your business.

Subdomain accounts, while less expensive, can often be established with the same features (multiple e-mail accounts, mail forwarding, web stats, FTP, SSI, etc.) as private domain hosting.