When setting up a blog, you have the option to use a sub-domain or a directory.  We suggest using a sub-domain for two main reasons. 

  1. Sub-domains are seen as a part of the website so you do not have to "start from scratch".  In other words, Google will recognize your sub-domain before it would a directory so it takes less time to get indexed.
  2. Sub-domains are also easier for a reader to remember.  They are more likely to remember both your website and blog site since they are so similar. 
In an article by Matt Cutts, he goes in to great detail as to why he recommends the sub-domain over the directory.  You can learn more blog secrets and how to blog for search engine optimization from Matt as well.