Subspaces are basically a way of telling NPCs in Oblivion that the area they are in (the subspace) is separate from everything else. This is useful for telling an NPC that they can't use a bench or some other object outside of the building they are currently in (because everything from the exterior is moved to the one interior cell, the NPCs think that they can use that stuff, even though it is outside the interior building mesh).

Indeed. Another thread will be forthcoming.