I've seen a virtual hosting plan with this feature mentioned:

"You can modify your DNS file"

What does it mean? What is this good for?

I have to asume you can add or modify A or CNAME records in the zone. I know several hosts that let you do this.

Interland does. Curiously, they don't advertise it as a feature, but when you go to the support pages they include the service. As many A or CNAME records as you want.

The usefulness is to point ftp.foo.com or sales.foo.com or whatever to a different location than www.foo.com.

Services like eNom (registrar) lets you do A, CNAME, MX and both regular and frame forwards. This way you could send people to "private.foo.com" to a special page.

I understand... So it won't allow me to host several domains within the same account, only subdomains, right?