To create a subdomain, log into your control panel and click on the "Subdomains" icon. Specify the name you wish to assign to your subdomain and click the Add button.
Once the subdomain has been created there will be a new folder in your public_html folder bearing the same name as the new subdomain. Upload the index page for your subdomain to that folder.
As far as relative paths are concerned, the subdirectory containing the subdomain will be handled as if it were the root web accessible directory on a separate account when accessed via the subdomain URL (subdomain.domain.com).
While the content within the folder can be accessed via either http://subdomain.domain.com and http://domain.com/subdomain any image or link tags which are set to call files using relative paths would be expected to function using the subdomain URL and fail calling the subdomain via it's actual "true" URL (http://domain.com/subdomain)
