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Yes, Nginx uses the wildcard on anything not specified. http://nginx.org/en/docs/http/server_names.html
That’s definitely possible :-). Just make sure you have an A entry for the WildCard in your DNS Zone otherwise it won’t work properly.
For example:
A @ DROPLET_IP
A * DROPLET_IP
A www DROPLET_IP
A demo DROPLET_IP
Alternatively, you can use a CNAME for www:
A @ DROPLET_IP
A * DROPLET_IP
CNAME www example.com
A demo DROPLET_IP
Though for completeness, I’d recommend:
A @ DROPLET_IP
A * DROPLET_IP
A www DROPLET_IP
A demo DROPLET_IP
A www.demo DROPLET_IP
or
A @ DROPLET_IP
A * DROPLET_IP
CNAME www example.com
A demo DROPLET_IP
CNAME www.demo demo.example.com
… and changing:
server_name demo.example.com;
to
server_name demo.example.com www.demo.example.com;