Originally Posted by AdultDesigns

http://codex.wordpress.org/Create_A_Network
As of WordPress 3.0, you have the ability to create a network of sites by using the multisite feature. This article contains instructions for creating a multisite network.

A multisite network can be very similar to your own personal version of WordPress.com. End users of your network can create their own sites on demand, just like end users of WordPress.com can create blogs on demand. If you do not have any need to allow end users to create their own sites on demand, you can create a multisite network in which only you, the administrator, can add new sites.

A multisite network is a collection of sites that all share the same WordPress installation. They can also share plugins and themes. The individual sites in the network are virtual sites in the sense that they do not have their own directories on your server, although they do have separate directories for media uploads within the shared installation, and they do have separate tables in the database.

NOTE: If you are currently running WordPress MU, you do not need to complete these steps. your network is already enabled. Once you upgrade to the 3.x branch, you will be prompted to update your .htaccess rules for MultiSite. As of the release of WordPress 3.1, you will need to upgrade WPMU manually. You can no longer use the auto-upgrade tool to move from WPMU to Multisite.