Note: these aren't the definitions you'd find in a book. If that's what you want, then go look in a book. These are they way I would explain the terms to someone. I'd appreciate it if you'd let me know of anything that's misleading or just plain wrong, but I'm not trying to be too strict. Life is tough enough. Sometimes, I may show some sarcasm, though.
The advantage of a subnet is that traffic between two machines on the same subnet doesn't have to go out onto the network above it, reducing traffic on the larger network. The division between shared and local to the subnet is determined by the "netmask". Here's a more detailed writeup.