To setup an addon domain you need to log into the cPanel for your hosting account.
Locate the "Domains" section of your cPanel
Click on the link "Addon Domains".
"New Domain Name" is the domain name you want to setup.
"Subdomain/Ftp Username" is the user name you can give out to and administrator that would be locked down to that site.
"Document Root" is the folder that the Addon Domain will be linked to.
"Password" and "Password (Again)" is the password that will be used for ftp on this domain.
Fill out the form then click the "Add Domain!" button