Well, you can either transfer the domain registration to here or the hosting to here or both. Domain registration is the "reservation" that you make for the actual domain name for anywhere between one and ten years. Domain hosting is the "hard part" of having a web server and putting web pages up, etc. Lots of people here have domain registration somwhere else and their hosting here. For example, anyone with a mydomain.co.uk domain must register it somewhere else because dreamhost doesn't provide domain registration for .co.uk domains. You can host any domain here, though. People just point the name servers to ns1.dreamhost.com, ns2.dreamhost.com and ns3.dreamhost.com and host the domain here.
Yes, you manage the disk space for a user under "Users>Manage Users". Edit the user and you can set the disk limit for that user. You manage bandwidth by domain under "Status>Bandwidth Usage". In the table of domains there is a link for each domain under the column "Bandwidth Throttling".
Transferring the domain registration can take a couple of weeks. As I said, earlier, you don't need to transfer the domain registration to have a domain hosted here. What most people do is transfer the hosting first, which only takes a couple of days (plus whatever amount of time it takes to actually get the site working here which of course depends on how complex it is). If they have a simple static website, moving the webpages should be able to be done in a few minutes and then you just have to wait for DNS propagation which will take a day or two.
In the panel under "Domains>Manage Domains", there is a button to "Add New Domain / Sub-Domain" that you use to add hosting for a domain to your account. Click on it and you can enter the domain name, etc for your little brother's domain.
Yes, you can give them panel privileges too, but the main thing is that you give them ftp privileges. When you add the domain, if you make the domain "fully hosted" (which is the correct option for your situation), you should enter a different username for the domain. Your little brother will do all of his stuff under this username, which will be completely separate from the sites hosted under your username. All the files end up under different roots - /home/youruser/yoursite1.tld vs /home/yourbrother/yourbrotherssite.tld, etc.
Do remember that your brother must also comply with the terms of service, so if he posts content in violation of copyright and such you'll be accountable and in the worst case, could have your account canceled. Make sure he knows the rules and follows them and you won't have any trouble!
Let us know if you need any further clarification. This was a lot of information all at once...
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