I am self educated when it comes to websites and all the technical stuff that goes with it. So needless to say, some things I just don't have a good enough grasp of. Hence my Newbe questions.

OK here we go....

I have ALL my domain names parked at server A
My main domain 1.com is pointed to my hosting server B. which is my store.

I have another domain name 2.com which is used for my blog, which is related to the items in my store and I use it to draw visitors to so they will also see my advertisement for my Store.
This blog is hosted in a sub directory on server B, and I currently have the domain name "2.com pointing to that subdirectory on sever B.

This method creates several problems, with search engines, page ranks and what URL is displayed to the visitors.

Now From what I understand, I would be better off using my blogs domain name, 2.com as a sub domain.

Question (1) Am I correct in my assumption of setting up my Blogs domain name as a Sub Domain, since the site is located in a subdirectory on hosting server B under my Stores domain name 1.com?

Question (2) As a sub domain does the URL look like this? "www.1.2.com"?

Thanks in advance

Search engines class Sub Domains as there own complete entity, So PR, links and other related search engine data will not be classed with your primary domain example..

> MyDomain.com
> Blog.MyDomain.com
> Storage.MyDomain.com

As above you have your domain which then branches into 2 separate domains even though they are of the same origin MyDomain.com they are classed as totally new and different Domains. If i understand your question correctly and wondering about your PR and other statistics classed as the same you would need to use sub directory's for your primary domain on your server example..

> MyDomain.com
--> MyDomain.com/Blog
--> MyDomain.com/Storage

As above your primary domain MyDomain is then the Top domain and simply branches and points into different pages (directory folders) this within search engines classes as the same domain but simply different sections and content of the domain.

I personally use unlimited sub-domains with DNS management to create forwarding links to other sites such as affiliate links and so on, If you wish to keep your PR for the whole of the content you are creating you will simply need to create sub directory's all on one server.

Hope this helps

Thank You for the reply and clarification!
It definitely was a help.