Reading through the documentation you have the ability to setup a WP Network in two ways, Sub-Domains and Sub-Directories. The only explanation they give you is
Sub-directory sites
It works with the use of the mod_rewrite feature on the server having the ability to read the .htaccess file, which will create the link structure.
If you are using pretty permalinks in your blog already, then subdirectory sites will work as well.
Sub-domain sites
It works using wildcard subdomains. You must have this enabled in Apache, and you must also add a wildcard subdomain to your DNS records. (See Step 2 how to set up.)
Some hosts have already set up the wildcard on the server side, which means all you need to add is the DNS record.
Some shared webhosts may not support this, so you may need to check your webhost before enabling this feature.
I'm looking to find if there is a performance, maintenance or other benefit to use one over the other.