Yes, each additional domain or sub domain requires a folder off the root.
Your hosting account has to have a domain associated with it and this is the primary domain, which using your example, would be domain1.com.
Your example is correct except that it is good practice to not include and special characters in the folder names :)
root > domain1.com files and folders
root/domain2/ > domain2.com files and folders
root/subdomain2/ > sub.domain2.com files and folders
Cheers!
Lyle