Search engine algorithms differentiate between URLs that belong to the same website and URLs that don't. For example, internal links (same site) and external links (cross-site) have different values. Search engine algorithms also use site-level signals (among many others) to infer the relevance and quality of content.

That's why pages on a very trustworthy, high-quality website tend to rank more reliably and higher than others, even if such pages are new and didn't accumulate a lot of page-level signals.

It seems that many webmasters tried to cheat these algorithms with private blog networks, doorway pages, duplicate content, subdomain or subfolder leasing. Bing penalizes all of these techniques.

Bing decided to consider 'subdomain leasing' a violation of their 'inorganic site structure' policy when it is clearly used to bring a completely unrelated third-party service into the website boundary, for the sole purpose of leaking site-level signals to that service. In most cases, the penalties issued for that violation would apply only to the leased subdomain, not the root domain.

Bing's Frédéric Dubut said that Bing manually reviews websites and that algorithms targeting these behaviors will roll out over time:

The policy is effective immediately for manual reviews. Algorithms targeting these behaviors will roll out progressively over time.

— Frédéric Dubut (@CoperniX) November 5, 2019

The penalty does not apply to the whole website:

These penalties are meant to nullify undeserved signals, not to obliterate a site. If the site is considered among the most relevant for our users and deserves to rank high on its own merits, then it will.

— Frédéric Dubut (@CoperniX) November 5, 2019

Bing reminds website owners that they are responsible for the content that is hosted on their domain. This is particularly true when subdomains or subfolders are operated by different entities.

According to Bing, the overall domain reputation will be affected if a disproportionate number of websites end up in violation of our webmaster guidelines. Taking an extreme case, if you offer free hosting on your subdomains and 95% of your subdomains are flagged as spam, Bing will expand penalties to the entire domain, even if the root website itself is not spam.

Another unfortunate case is hacked sites. Once a website is compromised, it is typical for hackers to create subfolders or subdirectories containing spam content, sometimes unbeknownst to the legitimate owner. When Bing detect this case, they generally penalize the entire website until it is clean.