The most common use of WordPress Multisite is to run a network of blogs form the same server or installation. One such implementation of this network approach allows users to signup and in essence create their own child blogs from the main parent blog. This can be especially useful in community, educational or social situations.
Individual blogs run in a multisite setup can be setup in several different URL structures:
- Subdomains: such as http://blog1.domain.com and http://blog2.domain.com
- Directories: such as http://www.domain.com/blog1/ and http://www.domain.com/blog1/
- Unique Urls: such as http://www.blog1.com and http://www.blog2.com
The exact method you choose really depends on your desired use and setup.