Is there only one partition on the drive? If so, just select that partition as the one to install DSL, and it will be re-formated during the install process.
If there are more that one partition, you could run DSL as a liveCD and use one of the partitioning tools such as gparted or cfdisk to delete all partitions, then create one partition on the entire disk. Then, during installation, it will be formated.
You have to decide which filesystem you want: ext2 (Linux, non-journaled), ext3 (Linux, journaled. Makes recovery from data corruption from improper shutdown easier), reiserFS (Linux, also journaled, but a bit more difficult to work with according to some folk). There are others, but those are the most popular.
Conversion from ext2 to ext3 is very easy. Converting from or to reiserFS is more difficult.