how can I make a "test.domain.com"?

I'm revamping my fiance's site http://www.juliegracestudio.com and instead of activating the new theme and working on the site, then activating the old theme again, I've seen someone somewhere who had a "test.hisdomain.com" set up online and I wasn't sure how to go about doing that. If I could do that, It would be much more efficient.