An add-on domain is a new domain that is added on top of your main domain. It creates a sub directory within your main web hosting directory but can show a different web site.

Add-on domain benefits.

1. Create multiple domains/websites on the same web hosting account.
 
2. Save money and web space by using one hosting account instead of several hosting accounts.

3. The add-on domain shares all the same resources (disk space, bandwidth...) with your main site.

4. It is easier to manage multiple websites via one central control panel than to login to a control panel for each individual website/domain.

5. Addon domains allow you to host more domains and websites to promote your business, each with their own set of keywords, without any additional cost.

Example

Your main domain is pietcomputers.co.za

You can now also register a domain piet-computers.co.za and build a website for this domain.  

In general the domain piet-computers.co.za is better than pietcomputers.co.za because of the separate keyword computers.

If you however register piet-computers.co.za the domain pietcomputers.co.za can be registered by somebody else while people can also type pietcomputers.co.za instead of piet-computers.co.za

As you can see from above it would be much better to register BOTH and then either point the one to the other or host a website on both domains.