Virtual directories can be used to run multiple web applications on a single domain. This is similar to subdomains, but in the case of virtual directories, the directory is access using the folder path instead of the sudomain name. For example if you have a virtual directory in the domain test.com named virdir, the virtual directory is accessed via test.com/virdir. If you setup the virdir directory as the subdomain named virdir.test.com, it is access via virdir.test.com/.
See How to Determine Which Version of Plesk Control Panel is Installed on a Server to know which set of directions to follow.