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>OK, it sounds like IIS accepts any traffic directed to it's IP address, and reads the address, then directs traffic to the virtual web site assigned to it.
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>Sounds easy! Please let me know if I misunderstood.
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>In my earlier fumbling about, I found that any time I tried to hit subdomain.mydomain.com, it just directed my browser to my default site at mydomain.com - perhaps the DNS record for this subdomain isn't needed at all, if it just directs traffic to the same IP?
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>Let me know - and much thanks for your explanation.

Your conclusion seems accurate. It might be a good idea, though, if you can, to add the DNS entry in the DNS server that has authority for your domain (mydomain.com) to avoid any confusion, and make sure that you will be directed to the correct IP address, and let IIS take care of the rest.