A site collection is a core concept in SharePoint Online and works more or less the same as it has worked in SharePoint on-premises versions for years. You can create one or multiple site collections and each site collections can hold one or more sites. You cannot, however, create a site collection that holds another site collection underneath. You can only have site collections that consist of sites and subsites.
To create a new site collection, you can use SharePoint admin center, which is typically the easiest way for one-off site collections you might need for development use. If you need multiple site collections, it might be easier to use a scripting language, such as PowerShell, to create multiple site collections.