Add-On Domains are when you use a paid and registered Domain Name to create a "separate" website within a single hosting account: you "add on" another domain, and create a separate Directory in which to publish an individual website. You simply enter the proper Nameserver info whever the name is registered to "point" to your hosting account.
If you did not want to pay for another Domain name ... you could create a Sub-Domain in cPanel.
Add-On Domains are preferred, as they have distinct URLs and are Domain-based and thus have clearly unique values for the Search Engines to attribute values upon and completely independent access for traffic to use to get to them.
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