I'm not a developer so you'll probably get more detail from someone else.
I think if you're running your site on a windows server you can run another site at the same IP address using a different port other than the default port which if I remember is port 80. The details escape me but they are probably at IIS.net. In MySQL you just choose a different schema (database) as part of the same "instance" (single configuration of MySQL) using a different user name, different password and different table prefix in your config.php to avoid security risks and confusion.
Probably also possible to do this using a subdomain from the same IP address pointing at a different directory.
Personally I just run my test server at a different IP address clearly marked "test installation" with a reference to the main domain for my site so that if anybody checks there's no confusion about what it is. I see this as less risky; less chance that I'll make a mistake and mess up my live installation by mistake.
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