Click Create Subweb (second from top).
Fill this in as follows:
Virtual Host Name - leave this blank
Port Number - should already be set to 80
Web Name - This is the name of the subweb
You can also Fill in the following if you wish:
Admin Login/PW - You can create a separate user-name and password for someone to use just for this subweb. If you don't fill this in, it will default to the main users login/password. (See below to turn Authoring on)
Unix User/Pass - Leave these blank, they will default to the correct user.