I have this URL for each users on my site:
http://appsite.com/dennis, I was able to get this done using a mod_rewrite routing found on appengine docs: https://developers.google.com/appengine/docs/php/config/mod_rewrite.
However I am looking to change it to something like
http://dennis.appsite.com as this is more SEO efficient. I am unsure where to start from any help would be appreciated.
You can do it with a custom domain, but not on appspot.com.
Refer to the documentation on wildcard subdomain mapping on what's possible.
Once the request gets to your app you use the modify the mod_rewrite example you linked to to pull out the right path from the REQUEST_URI.