Thought I would share a quick fix that was needed to have local subdomain when running XAMPP on Windows 7.
Go to C:\WINDOWS\system32\drivers\etc then locate ‘hosts’ file. NOTE: Create a backup of the file before editing.
Update it to include your virtual host:
127.0.0.1 localhost 127.0.0.1 dummy.localhost
Here is the reference I found: http://www.codingcereal.com/2011/05/setting-up-multiple-subdomains-in-your-localhost-using-xampp/