Yes that's how you create the space but what was confusing is that is seems like one is creating a subspace but really you have to think that it will be the parent and then go back and create the child by selecting the parent that was just created. Thanks Jose!
so I get how to make nested spaces now HOWEVER what I am finding is that the view spaces submenu for parent spages and child spaces is the SAME menu. Maybe I am not seeing it but there doesn't appear to be away to have a seperate/distinct menu for parent ('top level') spaces?
Yeah it looks like by default it doesn't enable the Submenu, but it can be enabled in Navigation > Site Navigation > Spaces. There you can edit item and check the box for "Show submenu in popup". But it doesn't look like it is working on the 12 Beta2. You can also create your own submenus pointing to categories.