Site content for a given domain or subdomain is served from its document root. A document root is the base folder from which all content is served. All accounts have a document root for the primary domain under
mainwebsite_html/ is a link to this location.
Whenever a domain is added through DNS > Addon Domains or subdomain created through Web > Subdomains, the directory specified will be the location from which content for that given domain or subdomain is served.
example.com is an addon domain. The document root for this domain is
/var/www/example.com. Accessing http://example.com/myfile.html would serve the file from
/var/www/example.com/myfile.html. Accessing http://example.com/myimages/someimage.jpg would serve the file from
/var/www/example.com/myimages/someimage.jpg and so on.
But be careful…
As seen, whatever directory specified acts as location from which content is served. What if mydomain.com serves from
/var/www/html and example.com serves from
/var/www/html/example.com? It would be possible to reference content for example.com with a cleverly-crafted URL: http://mydomain.com/example.com/index.html points to the same file resource as http://example.com/index.html!
.htaccess rules for mydomain.com under
/var/www/html would be applied to example.com. Any mod_rewrite, PHP, or general Apache directives will be applied to both mydomain.com and example.com. Unless sharing common directives among multiple sites is required, always place addon domains and subdomains under /var/www.