I wonder If there is any case we can have a site collection within another site collection in sharepoint 2007 and if we can have then whats the advantage and if we cant do it then why not.
You can have multiple site collections within a single web application.
A single site collection can contain 'n' number of subsites within itself.
Since SharePoint supports creating multiple subsites within any number of levels, each subsite virtually acts as a site collection (collection of subsites with any templates and at any levels) which is completely exportable and importable through command line(stsadm).
Essentially, any subsite that contains multiple subsites within itself is "almost" as good as a site collection expect for a few unique things that a top site collection gets url managed paths, alternate accessing mappings,collection administrators etc.
So to answer the question having a site collection within another site collection was only logical if SharePoint did not provide us with the option of creating a hierarchal arrangement of sites to any level while making them non exportable at the same time.
The answer depends on what you mean by having a site collection within another site collection.
The main purpose of site collections are they are completely separate, which be definition means that one cannot be inside another.
BUT thats from SharePoints point of view. You can set up managed paths such that you can create site collections which from an user point of view looks like they are within each other.
It very common to have a setup with the following urls to site collections:
From an user point of view it seems as if the department site collection are within the root site collection. But they are really completely separate.
The advantage of separate site collection are mainly security and the possibility to put them into separate content databases.