Addon Domains are domain names that point to subdomains within your account. You first need to purchase a new domain name then point it to your hosting company’s dns servers.
The url will look like www.newdomain.com
This feature must be enabled for your account before you can use it. Addon Domains will not be functional unless the domain name is registered with a valid registrar and configured to point to the DNS servers. The path to this will be public_html/newdomain
A Sub-domain is a sub-folder in public_html but you don’t need to register a new domain name. Just create a sub-domain using cPanel.
Your url will look like www.subdomain.maindomain.
If you wish to grant virtual ftp access to this subdomain, just create an FTP user with the same username as the subdomain base name that is listed inside the () in sub-domain maintenance list in cpanel.
The path to this is public_html/sub-domain
Go here for an explanation of thedifference between a subdomain and a subdirectory. a
Source: 30 Day Challenge Forum
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