Hi.
I faced the same problem and after much headache, I got the answer. Let us use this site url - store.mywebsite.com/fashion as example.
In ps_shop_url, change the two localhost in domain and domain_ssl to store.mywebsite.com
physical_uri will be /fashion/
In ps_configuration, change both PS_SHOP_DOMAIN and PS_SHOP_DOMAIN_SSL from localhost into store.mywebsite.com
Next, open your settings.inc.php and make this changes -
define('_DB_SERVER_', 'localhost'); //Leave this as localhost, in my case, changing this was the source of my problem. Its different for 1.5//
define('_DB_NAME_', 'xxx');
define('_DB_USER_', 'xxx');
define('_DB_PASSWD_', 'xxx');
Replace the xxx with the real data.
This should solve your problem. It solved mine and I am just happy to share it!
Goodluck!