To create a subsite in PWA; please follow these steps.

1.       Click on Site Actions.

2.       Click on New Site.

3.       Select the Template.

4.       Enter the Title.

5.       While entering the URL; please enter only the last part.  So for example if you want to use http://projects.contoso.com/demo1; then please enter demo1 only.

6.       Your SharePoint Site for the Project has been created.