Setting up development area

Hello. I’m looking to setup a development area (either http://www.domain.com/dev or dev.domain.com). I have a copy of the database and an install of wordpress under dev, but when I use the front-end it resolves to the main website each time.

Do I need to do a mass search and replace in the database and change all http://www.domain.com to http://www.domain.com/dev or something??

I’m pretty green with code, but understand the logic a bit.

Thanks.
JD