Well, when you boot up for the first time you'll probably want to have the Win 7 disk in the optical drive.
If you do, you'll get a wonderful loading screen that'll take forever, and then you'll get a screen that tells you the space/partitions on the current HD and asks if you want to create a new partition.
You'll probably wanna say yes in this step and then decide how big you want your partition to be.
Then you click ok and the computer will format and create a new partition. For you.
You'll then probably want to say yes when it asks you if you want to install the OS on the partition you just created.