The Addon domain feature in located in your Cpanel and you can create a separate domain next to your main domain on your account. The HTML contents of a subdomain goes into a subfolder of the /public_html/ folder in your account.
Every addon domain also creates a subdomain. An Addon is basically a subdomain that can also be accessed by the full domain. So for the visitor it is transparent, because they only see the full domain in the URL bar of thier browser.
So if you would add a domain named addondomain.com and your main domain is maindomain.com, Cpanel creates a subdomain called addondomain.maindomain.com. The contents which goes in the /public_html/addondomain/ directory. You can define a different location for your addon domain's sub directory however it is advised that the default location is best.
You can create POP mail accounts with maindomain.com and also the FTP can be accessed with maindomain.com using the details defined when setting up your addon domain.
Make sure that you also update the nameservers for your addon domain at your registrar with the same nameservers as for your main domain (see yourr welcome e-mail for the correct nameservers).
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