This is best explained by using a diagram and example.
in the sample models that ship with Vensim, navigate to the \Models\Sample\Sub-Model\ folder. In this folder, there are three separate models, market_model.mdl, products.mdl and advertising.mdl. These are derived from the market model that also ships with Vensim (\Models\Sample\MARKET).
"products.mdl" calculates everything relating to the "product" view from the market model. There is one parameter that would have been calculated by the market model ("prod dev budget"), this is a constant in this model to allow it to simulate independently from the market model.
"advertising.mdl" calculates everything relating to the "advertising" view from the market model. "adv budget" and "products" are parameters that would have been calculated by the market model. In the advertising model, these are constants to allow it to simulate independently from the market model.
The following diagram shows the new relationship between the market model and it's two sub-models.
Now we can have three people independently developing the models. Each of the sub-models simulate independently so can be continually tested and developed.
