You can format in any way you want. Just remember two things. Windows can not write to linux partitions and Linux can not write to NTFS partitions (as for yet). They can both read each others partitions (with a program in windows) and can both write to FAT partitions (FAT16 or FAT32).
When partitioning you can and should create a / (root partition) and a /home (home partition). In the home partition is where all your personal files will reside. Or you can do this nice trick of creating symlinks to FAT partitions and extend your home directory to bigger space. However in this case you loose permission capability and this is a security issue. So be careful and think before doing such a thing
Well, if you have any unanswered questions, let us know.