Google’s Matt Cutts posted a new Webmaster Help video about subdomains vs. subdirectories. It’s a topic Google has talked about various times in the past, but as Cutts notes in the video, it’s been a while, so perhaps it’s worth revisiting.
The user-submitted question he’s responding to is:
I’m interested in finding out how Google currently views subdomains — whether there’s any difference between a site structured as a group of subdomains and one structured as a group of subdirectories.
“They’re roughly equivalent,” says Cutts. “I would basically go with whichever one is easier for you in terms of configuration, your CMSs, [and] all that sort of stuff.”
You can watch the video for a more complete answer.