

Read first this if you are installing a new WordPress installation
Famous 5-minute installation
1. Unzip the package in an empty directory and upload everything.
2. Open wp-admin/install.php in your browser. It will take you through the process to set up a wp-config.php file with your database connection details. See picture:

a. If for some reason this doesn’t work, don’t worry. It doesn’t work on all web hosts. Open up wp-config-sample.php with a text editor like WordPad or similar and fill in your database connection details.
b. Save the file as wp-config.php and upload it.
c. Open wp-admin/install.php in your browser.
3. Once the configuration file is set up, the installer will set up the tables needed for your blog. If there is an error, double check your wp-config.php file, and try again. If it fails again, please go to the support forums with as much data as you can gather.
4. If you did not enter a password, note the password given to you. If you did not provide a username, it will be admin.
5. The installer should then send you to the login page. Sign in with the username and password you chose during the installation. If a password was generated for you, you can then click on ‘Profile’ to change the password.
WordPress 3.0 is when the big merge happens. The core of WPMU is incorporated in WordPress which means that you can now run multiple blogs from one installation of WordPress. This new feature is being called Network and is under the Tools menu. By default this feature is disabled. If you want to use this option in your WordPress, then you would have to enable it.
note : to use sub domains make sure your home url & site url is set to http://domain
rather than http://www before you enable multisite or you can get the sub domains like
this http://subdomain.www.domain.tld. You can do it in the wp>Settings
To enable the Multisite feature, simply open your wp-config.php file located in your WordPress root folder. Then add the following line anywhere in the file (I put it before the line “That’s all, stop editing! Happy blogging.”) :
define (‘WP_ALLOW_MULTISITE’, true);
make sure that these ( ‘ ‘ ) are correct or will not work.
Upload the wp-config.php file, now you should be able to access the network page from Tools>Network, see pictures…

IMP. note for next picture: when creating the folder wp-content/blogs.dir give it 755 or 775

My .htaccess FILE looks like this:
# BEGIN WordPress
<IfModule mod_rewrite.c>
RewriteEngine On
RewriteBase /
RewriteRule ^index\.php$ – [L]
# uploaded files
RewriteRule ^files/(.+) wp-includes/ms-files.php?file=$1 [L]
RewriteCond %{REQUEST_FILENAME} -f [OR]
RewriteCond %{REQUEST_FILENAME} -d
RewriteRule ^ – [L]
RewriteRule . index.php [L]
</IfModule>
# END WordPress
Once you have edit or created the .htaccess file (some hosting require an extra permission to allow run it on your site) and If you have followed all the instruction above, from now, you no longer need to install multiple copies of WordPress because you can run multiple blogs from one installation within many dashboards.
Last note: By default, with WordPress 3.0 you would only be allowed to run other blogs as a subdomain, if you want to use other domains for blogs, you can use a Domain Mapping plugin that allows users of a WordPress MU/3.0 to map their blog to another domain.
Resources:
http://trac.mu.wordpress.org/browser/trunk/README.txt#L21
http://mu.wordpress.org/forums