When I started out to build one of my very first websites April 2004, I used subdomains to help separate content. A few points on those successes and mistakes:
First - I can affirm that Google penalizes for duplicate content. I made this novice mistake and near-fatal error, with some pages and it's taken the better part of a year to get back into the graces of Google. Now that I've grown and gotten valuable knowledge from the mistake, I simply chalk it up as "lessons learned".
Second - It does help with name (keyword) recognition and being able to have completely separate content and keywords, which for many months related to many of my subdomains drawing more traffic than the main.
Finally, IMO, when the subdomains have good, solid (separate) content, the inter and intra linking becomes very symbiotic throughout the sites adding to its presence and power.
When the subdomains can "stand on their own" they become very powerful tools to add to the overall efficacy and likeability of the domain. If one of my subdomains (which happens) get a high
PR, it helps obviously, the main site. Many of my subs in fact have higher
PR than the main.
There comes IMO a fine line to having sub-domains and simply creating separate directories - I haven't come to a conclusion on this point yet ... but a fine line in usage, ranking, et al indeed; my jury is still out ... any thoughts for deliberation?