The following graphic shows an LDAP directory organization for a hosted domain installation that uses Sun LDAP Schema 2.
LDAP Schema 2 uses a flat LDAP directory organization, that is, the domains are all at the same level; they are not nested. For a hosted domain installation, the first level entries (as shown by varriusDomain, sestaDomain, and siroeDomain in the graphic) must be parallel in the directory organization. These entries cannot be nested.
If you want to use Access Manager features such as single sign-on (SSO), or use Delegated Administrator to provision users, Schema 2 is required. However, there is a hybrid variation, a two tree scheme that uses both the DC tree and the Organization tree, much like Schema 1, but it uses the Schema 2 object classes and attributes. This is Schema 2 compatibility mode, which is called Schema 1.5 in the configuration program (csconfigurator.sh).