It sounds like a stupid question but...
If I had a domain such as example.com, could I set the IP address of abc.example.com to 127.0.0.1?
Are there any side effects I should know of? E.G. would it not try to connect to myself? Would it also upset the main site (example.com)?
Anyone trying to reach abc.123.com will always be directed to their local computer. You might have some local effects on the server itself, but probably not since most services will rely on /etc/hosts before resorting to DNS.
Yes, you can do this, and some people do.
For quite a while there was a running joke where, when someone asked for illegal software, they would be sent to warez.example.com - which had been set up in DNS to point to 127.0.0.1. Hilarity ensues when the person comes back and says something like he had all that software already.
