All domains on the Internet and formed from at least two parts - the TLD (Top Level Domain, e.g. .com or .net) or ccTLD (Country Code TLD, e.g. .co.uk or .de) and a name. For example, example.com has a .com TLD and is named 'example'. Although all domains must contain these two parts, it's a minimum, not a maximum.
By prepending the domain with another name and a period (e.g. test.example.com), you are in fact created a whole new domain entry. The settings for test.example.com can be completely different to example.com if you wish. It is the test. part of the domain which we call a sub-domain - i.e. anything before example.com is a sub-domain.
The most common sub-domain is www., however this is normally either a link to domain name (known as a CNAME record in the DNS panel), or just has the same settings.
There are many advantages to having control of sub-domains - you could, if you wanted, use testing.example.com to provide a password-protected copy of your website were you can make changes and additions before copying them over to the main site (if you make a mistake, then it's not public).
You can also use sub-domains such as support.example.com, forum.example.com or sales.example.com to provide different functions and to enable easy-to-remember addresses to parts of your website. For example, Google uses maps.google.co.uk and groups.google.co.uk to provide access to it's different sections.
Plesk even allows you to give a different FTP username and password to each sub-domain (however only the Domain User can access SSH and Plesk), as well as different settings for PHP, Perl, Python, etc. What you do with your sub-domains is up to you.
