Subdomains are a lower level of domain names but are functionally the same. A domain name consists of the second level and top level domain such as 1and1.co.uk.
1and1 is the second level domain, while .co.uk is the top level domain. Subdomains are those domains with third, fourth, etc. level domains such as www.1and1.co.uk or www.wilson.k12.pa.us. While www.1and1.co.uk has 3 levels and www.wilson.k12.pa.us has 5 levels, both are considered subdomains.
It is possible to point subdomains to different IP addresses or folders holding content that the main domain does not have.
Subdomains can be used for various reasons instead of purchasing additional domains:
Segmentation based on divisions (government, school)
www.wilson.k12.pa.us - Wilson being a K-12 level school in Pennsylvania USA.
Segmentation based on content
For example: electronics-technology.shop.ebay.co.uk, motors.ebay.com or forum.domain.com.
Testing and staging
For example: A website such as v2.domain.com, where domain.com is the live site known to the public and v2.domain.com holds a live version of a layout in progress.
For example: A website such as secure.domain.co.uk is used as the address for a secure checkout process for an E-commerce site, or images.domain.com is used to point to a separate server holding images for the website.
If you see a "websitehome.co.uk" subdomain in your account, you can use it for testing. It is automatically added to most 1&1 packages and mostly for customers who may order a package without a domain. It cannot be deleted and your account will never be charged for it.
For additional information, you may want to reference: