When you create a site, you have the option to list  this site  in the
directory. You then select which categories you would like the site listed
within. If, however, you neglect to actually check the box to list the site,
it will not appear in the directory. Furthermore. Before a site is visible
to all users, the listing needs to be approved. If you want to modify the
categories and elements of your site directory, then go to the Sites list in
the site directory  site and modify the column settings  as needed.

I do not see the option to list  the site  (and again I am NOT asking
about site collections, but rather sub-sites  within a site
collection - please let me know proper terminology if I am stating
this incorrectly). I am aware of the this working ok for site
collections (where the site directory  entry needs to be approved),
but was hopeful that we could use the same priniple withing the site
collection for sub sites  (again the admin pages SEEM to support  this)

You only see the option to add the site  to the sites  list when you create the
site using the link inside the sites directory. However, you can always add a
manual entry  to the sites list  in the site directory  and have the subsite show
up. The additional dialog is added to the create page  based on the link you
kick it off from.