What is the most maintainable and efficient way to architect a web application who's purpose is to host and generate websites which can be customized to a certain degree?

There are a lot of these style of applications in the wild that generate all kinds of sites, from sites that host World of Warcraft guilds like guildlaunch to other sites like my wedding for wedding site hosting. My question is, what is the basic architecture that these sites operate on?

I imagine there are two ways of thinking about this. A central set of code that all sites on the host run against, and it acts differently based on which site was visited. In this manner, when the base code is updated all sites are updated simultaneously.

Or, the code for an individual site exists in a silo, and is simply replicated to a new directory each time a site is created. When an update needs to be applied, the code is pushed out to each site silo.

In my case, I am working in PHP with the CodeIgniter framework, however the answer need not be limited to this case. Which method (if any) creates a more maintainable and efficient architecture to manage this style of web application?