In reply to:
Is it possible to point them to a sub directory? Say if I let a friend use some of my webspace for their website..
I am not 100% sure what you mean, but it is possible to configure the 'web directory' when adding the domain to the DreamHost system, you could point this to a sub-directory if you wish.
However, a much better solution for sharing your webspace would be to simply create a new user for your friend, then create a new sub-domain, setting the new user as the owner of the sub-domain. This way your friend can log-in using FTP and will only see his own home directory, with the relevant directory/files for his sub-domain.
Mark