Subdirectory is seen as part of your main domain. If it's a good one, I would use it. Subdomain is seen as a separate site. Good if you want totally different subjects and niches.
Its depends what you what, I would go for domain.com/abc simply because its under your domain, which probably has backlinks etc. If you create a new subdomain, it is treated as a new domain
interesting..so if my main domain.com has high PR..then domain.com/abc would have the same PR as the parent Domain?
It won't have PR the same as the parent domain, but building the site this way will allow the sub pages to gain PR from the pages that currently have PR. As others have said, a sub domain is treated as a separate site, whereas domain.com/abc is treated as the same site.
I've seen that subdirectories get a PR update due to the main page. In my case, my site got a PR3 and a side page (a forum) got a PR2.
It really depends on what you are trying to achieve. In most cases a sub directory is the best thing to use as the trust associated with the parent domain passes more easily to a directory than a sub domain.