Summary: Subsites can be used in hierarchical information spaces to give particular prominence to a certain level of the hierarchy which is used as the subsite designator.
Web users need structure to make sense of the many and varied information spaces they navigate. The fundamental nature of the Web does not support any structure beyond the individual page which is the only recognized unit of information.
Single pages are obviously not sufficient as a structuring mechanism, and from the early days of the Web, I have advocated an emphasis on the site as an additional fundamental stucturing unit. Since a single click can take the user to the other end of the world, every page needs to provide users with a sense of place and tell them where they have landed. A recommended standard is to put a corporate or organizational logo in the upper left corner of the screen (upper right corner in countries using a right-to-left language). When clicked, this logo should take the user to the main home page for the site.
Explicit recognition of the site as a structuring mechanism is important for Web usability, but most websites are much too large for the site level to provide the only structure. Much information can be hierarchically organized, and an explicit representation of the hierarchy can be added to the top of the page to provide additional context and navigation options. For example, the intranet for the hypothetical BigCo company might have the following list of the nested hierarchy leading to the home page for the Stockholm office:
Each of the elements in the hierarchy list should be made a hyperlink to the appropriate top page for that level of the hierarchy. Note that the name of the lowest level of the hierarchy (here, "Stockholm Office") should not be a link when displayed on the top page for that level. Even the lowest-level name should be made active when displayed on a leaf page on that level.
For information spaces that cannot easily be hierarchically structured, the subsite can be used as a helpful additional structuring mechanism. Subsites can also be used in hierarchical information spaces to give particular prominence to a certain level of the hierarchy which is used as the subsite designator.
By "subsite", I simply mean a collection of Web pages within a larger site that have been given a common style and a shared navigation mechanism. This collection of pages can be a flat space or it can have some internal structure, but in any case it should probably have a single page that can be designated the home page of the subsite. Each of the pages within the subsite should have a link pointing back to the subsite home page as well as a link to the home page for the entire site. Also, the subsite should have global navigation options (e.g., to the site home page and to a site-wide search) in addition to its local navigation.
(Added 2003: Some people have been using the term "microsite," but I prefer subsite because it emphasizes the proper relation between the full site and the specialized content. Microsites tend to be too independent and fragment a company's Web presence in ways that reduce its overall impact.)
Subsites are a way of handling the complexity of large websites with thousands or even hundred of thousands of pages: By giving a more local structure to a corner of the information space, a subsite can help users feel welcome in the part of a site that is of most importance to them. Also, a large site will often contain heterogeneous information that cannot all be squeezed into a single standard structure, so the ability to have subsites with somewhat different look-and-feel can provide an improved user experience. A subsite is a home environment for a specific class of users or a specific type of usage within a larger and more general site.
There is a tension between the desire of the subsite designer to optimize fully for the specific needs of local information versus the need for consistency across the entire site. Subsites should definitely not aspire to become independent sites with no relation to the parent site of which they are part and which should provide them with context and richness. In my opinion, IBM's new AlphaWorks subsite is an example of what not to do: IBM has maintained a strong site identity across all their other subsites with a logo in the upper left corner and a tilted subsite image in the upper right, but AlphaWorks hides the logo at the lower left and has an inconsistent style. It's almost as if AlphaWorks was ashamed of its parent site.
A good example of a subsite done right is ZD Net's AnchorDesk. AnchorDesk provides a platform for the respected computer industry commentator Jesse Berst to discuss current events in computing and pull together recommended links to additional information from across the rest of the Ziff-Davis site. The AnchorDesk subsite uses human editing as a guide to an otherwise overwhelming information space and has value-added use of hyperlinks to provide the foundation for the commentary.
By the way, I apologize for making several words blue in my "Stockholm Office" example above even though they are not active hyperlinks. Except for examples like this, one should never make text blue if it is not a hypertext link since users have grown accustomed to scanning pages for blue text that they can click on.