I have an IPB license, and I'm running a community right now, I was wondering, would my license allow me to install a second instance of it on a sub-domain?

No. One license per install.

I thought I heard/read somewhere that a "development" installation was allowed in addition to a public installation, for each license. Can someone please confirm whether this is true?

You can have one active installation (your community) and one development installation that only you or your developer should have access to, it must be hidden from the public etc.