I'm going to build a multi-user website, much like wordpress.com, that users can signup and get their isolated account at a sub-domain.
How this could be implemented efficiently? I'm not asking about assigning sub-domains to users, I want to know about the application architecture which could make this possible.
This application architecture is commonly called "Multitenancy" or Multi-tenant applications where there is a single instance of the application that services multiple/isolated users.
see: http://en.wikipedia.org/wiki/Multitenancy
There are some further links at the bottom of that page.