I am wondering if subdomains that are created upon signup become websites or do they just give the illusion that they are websites sort of like example.com/username?
I am trying to create something like user.domain.com and can't really find something helpful to do it? Is there a way I do it so that i can allow customizations for the account for clients?
I need them to be like standalone websites so that i can go and customize them upon client requests, so what is the best way to go about it?
Others have answered the main points of your question, but I did want to touch on what you call the "illusion" of a website.
There are a few different ways to serve a given application in a domain, subdomain or directory, from static files, to a single file handling every request no matter what path or domain was requested. No method is more or less "real" than any other. The only method I would call an "illusion" would be a website masked behind another website using frames, which is generally a Really Bad Idea. (Try bookmarking on a site where the URL doesn't change as you click around.)