Host Multiple Web Sites - Each with it's own domain name!
Add-on domains are for users of Cpanel (and new Plesk!) control panel services. They are offered on Linux Custom Plus and greater hosting plans (http://www.hostned.com/web-hosting/).
In your Control Panel, creation of an addon domain allows you to host an additional domain from within your current server Control Panel interface. It will have access to it's own databases and email accounts, but they will count against your overall allowance of such. It is a great solution for those who want to host more than one domain but do not mind doing that from the same Cpanel hosting account.
Cpanel Documentation for Add-on Domains (http://docs.cpanel.net/twiki/bin/view/AllDocumentation/CpanelDocs/AddonDomains)
Alternatively, if you want access to a completely different server Control Panel account for different end users, you may want to consider simply having separate hosting accounts for each of them or use a Reseller Hosting account (http://www.hostned.com/web-hosting/) that allows for hosting of completely independent domains on separate Cpanel accounts.