There are a few options, but the easiest is probably using some URL rewriting given your current setup.
mod_rewrite in .htaccess
In your htdocs folder create a .htaccess file:
RewriteEngine On
RewriteBase /
# If the URL does not already exist as a file
RewriteCond %{REQUEST_FILENAME} !-f
# or directory
RewriteCond %{REQUEST_FILENAME} !-d
RewriteRule ^(.*)$ /domain/$1 [QSA,L,NC]
Virtual hosting with Apache
You could also edit your VirtualHost container in the Apache configuration to change the directory as well. If you are running XAMPP then I have previously written about using virtual hosts with it on my blog.
For example:
<VirtualHost *:80>
ServerAdmin name@domain.com
DocumentRoot c:\xampp\simonholywell.com\pub
ServerName simonholywell.localhost
<Directory c:\xampp\simonholywell.com\pub>
Order allow,deny
Allow from all
</Directory>
</VirtualHost>
A development server for teams (or individuals)
I have also written a large article on setting up a development or staging server for a team as well, which would be good reading if you are setting up such a system. It allows you to simply add a folder on the server and it is immediately available as a subdomain without any further configuration. This is something called mass virtual hosting.