Google has changed how they are classify sub-domains, and it is a pretty significant change.
Subdomains Now Considered Internal Links By Google Webmaster Tools
From what I’ve read of the actual Google announcement isn’t this just a visual change within Google Webmaster Tools, and not an algorithm change?
Now that I’ve looked at the official google announcement again, it looks like it’s just a change in webmaster tools. It didn’t say anything about changes in the search algorithm.
I agree the announcement is pretty nebulous and is not clear if it is just a cosmetic change or not, but I would ask why they would go through the trouble just to make a cosmetic change. I think there is more to it behind the scenes, or at the least this is how they plan to handle sub-domains in their algorithm in the future if they are not already doing so.
Google is infamous for announcing things with as little explanation as possible and letting people interpret it. They like to create FUD.
Some SEO’s used to build multiple blogs on free blogging sites and use them for link building. Now these link will be treated as from 1 domain so it also helps to stop spamming.
This is a considerable shift from the earlier practice. Probably, this change has happened during the panda update. Anybody confirm or deny this?
I agree it does make sense, but there will be some interesting cases and I am curious to see how they decide to handle them. A couple are mentioned in the comments of the article such as:
How will they handle the millions of wordpress.com and blogger blogspot.com domains that are all on subdomains, but are clearly separate sites.
How will it effect external links from a sub-domain? If a.example.com and b.example.com link to blah.com will a link from c.example.com now be devalued since blah.com already has 2 links from example.com?
That seems like a very sensible solution. It is pretty rare for sub-domains to be genuinely independent of the parent domain these days (and probably always has been), so classifying those links as internal simplifies things a lot, both from Google’s point of view (in terms of having to be wary about potential link spam) and from site owners’ point of view (by clarifying the procedure).
You’re all welcome. 
Yet another reason why you shouldn’t trust the word of sites like Search Engine Roundtable and SEOMoz.
Good call with your assessment. Google clarified it:
Google Subdomain Change Only Related To Webmaster Tools