Before you can use your disk for storing information it has to be formatted. 
Here is a step-by-step description of the process.

1.  The formatting process is necessary to proceed before you can use your disk. The magnetic drive does it by writing a pattern of 1s and 0s onto the surface of  the disk. We can call it signposts.The pattern divides the disk radially into sectors  and concentric circles. When the read/write heads moves back and forth over the  spinning disks, it reads these magnetic signposts to determine where it is in  relation to the data on the disk's surface.

2. Two or more sectors on a single track make up a cluster or block. A cluster is  the minimum unit DOS uses to store information. Even if a file has a size of only  1 byte it uses an entire 256-byte cluster to hold the file. Your disk capacity  depends on how many clusters your disk can handle.

3. The first sector, sector 0, is reserved for the boot-sector. It contains information of  the size of your disk etc. After the boot-sector follows the FAT or file allocation  table. It contains information about the disk's directory structure and what  clusters are used to store which files. In DOS versions used today an identical  copy of FAT is kept in another location in case the data in the first FAT becomes  corrupted.

Written by Stefan Ohlsson in 1997