Yes, from the documentation:
Subtitles may be stored in two different formats within media or as additional files:
• Bitmaps (Pictures), e.g. VOBSUBs
• Text with markup, e.g. Closed Captions and SRT files.
HandBrake can use subtitles tracks as INPUT from the following sources:
• From DVD’s – Either VOBSUB or CC tracks.
• User supplied SRT files.
HandBrake has two methods of subtitle OUTPUT:
• Hard Burn: This means the subtitles are written on top of the image permanently. They cannot be turned on or off like on the DVD.
• Soft Subtitles: This means the subtitles will appear as separate selectable tracks in your output file. With the correct playback software, you’ll be able to enable / disable these subtitles as required.