As of WordPress v3.0, WordPress has the ability to create a network of sites by using the multisite feature baked right into the core. This is all WordPress lingo for allowing an unlimited number of distinct WordPress site’s to be created under a single WordPress install (single sign-in, single installation, single hosting).
The feature was originally called “WordPress MU” for “Multiuser”, but that’s a misnomer. “Multisite” makes a lot more sense, don’t you think? I digress.
Compared with a typical single-install of WordPress, a WordPress Multisite Network installation has additional considerations. You must decide if you want to use subdomains or subfolders to house each of the sub-sites and how you want to manage them. Installing themes and plugins is different too. For example, each individual site of a network can activate both, but install neither. Should users be able to login to all of the other child sites, some, or none.
Enabling Multisite is easy. Just open up wp-config.php and add this line above where it says /* That's all, stop editing! Happy blogging. */. If it doesn’t say that anywhere, then add the line somewhere above the first line that begins with require or include:
/* Multisite */ define( 'WP_ALLOW_MULTISITE', true );
Once that’s done, you’ll log back in and configure your new Multisite network.
There’s a lot more info about setting up WordPress Multisite in the WordPress Codex.
For the over-acheivers among you, check out The Ultimate Guide to WordPress Multisite by WPMU Dev.