Matt Cutts did a blog post bright and early this morning (just after midnight) about subdomains and subdirectories. Matt clarifies the definition of each:
Just as a reminder, in a URL such as subdomain.example.com/subdirectory/ , the subdomain is “subdomain” and the subdirectory is “subdirectory” (also sometimes called a folder).
Matt goes onto say that it really does not make much difference to Google which you choose for your site. He also explains that setting up a subdomain is generally a bit harder than setting of a subdirectory. Matt tends to lean toward using a subdirectory over a subdomain as well (as do I).
Here are a few extra points I'd like to make about the way these things work:
1. From a ranking perspective it truly makes no difference. It's all in the links (had to get the title in there somehow). If you have a subdomain (content.yourdomain.com) that is linked to by the main domain (www.yourdomain.com), and you also have a subdirectory (www.youdomain.com/content) that is linked to by your domain in exactly the same way, the crawler treatment, and the indexing and ranking of the two will basically be identical.
2. That said, I do think that there is a slightly greater risk that a subdomain will be treated as a separate site by Google. While this risk is fairly low, I don't think there is zero risk. I say this because it is entirely conceivable that the subdomain is not operated and managed by the same people who operate and manage the main domain.
This risk is probably greater for smaller sites not yet trusted as much by Google. Bottom line: if you have a relatively new site, steer away from subdomains and stick with subfolders. No need to complicate your life after all.
3. For larger more well established sites, I don't think there is any risk of this being an issue. Using subdomains or subfolders is a matter of choice. I've worked with massive media companies that have large families of large sites that use subdomains heavily.
Subdomains can provide a preferable way to organize the site, particularly when dealing with highly varied topics or channels of delivery (e.g. video, mobile, etc.). This is especially true if the nature of the content or channels makes it more likely people will link to it directly.
Ultimately, I think the key point is the first one. How you link to your subdomain or subfolder guides the behavior of the crawler. There is no magic juice that accrues to either method, and using a subdomain does not make it more likely you'll get multiple listings in the search results.
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