Correct... mostly. :)
SubDomains are like this:
<-- my domain
sitebuildit.rlisolutions.com <-- a subdomain
Some hosting packages allow limited number of subdomains, some offer unlimited. Generally, subdomains should still fit into the same theme as your main site. A frequent use of submains is something like: "http://forums.somedomain.com/" Where the Forums is a subdomain, and takes you directly to that section.
There are all kinds of features with web hosting. Web Space, Bandwidth, Stats tracking, PHP (and other scripting) support, email accounts, virus protection, backups, search engine submission and so on. Hard to list them all. Basically, you need to decide what it is you want on your site, and find hosting that allows you to do that. 1and1.com is pretty open, and lets you install just about anything on your hosting package. Some packages do not allow that.
[I've put quotes around the example URL to UNhyperlink it. Admin.]