Lists are made out of data elements called CONS cells. The CAR contains a pointer to the first element of the list, and the CDR contains a pointer to the rest of the list. This is unusual, but it can be done. Lisp avoids the use of dotted pair notation except when there is no alternative.
Dotted pairs are sometimes handy.
If you want to keep a list of pairs of items, dotted pairs are slightly more efficient than 2-item lists. The original tree is not modified, but the new tree may share list structure with it. In effect, sublis can perform several subst operations simultaneously. They are the source of many subtle, nasty bugs. Returns the modified cons.