Once again the manual covers how to partition your drive using APS PowerTools. Drive Setup from Apple opens with a dialog listing all the SCSI devices listed in a dialog. You should recognize the volume names as the ones you have seen on your desktop while using your computer. Clicking on each device lets you know if that disk can be initialized by Drive Setup. Usually if it can't be it will tell you why.
Initialization is the process where a drive is prepared to hold information.
When you initialize a drive all the information on the drive is erased. After selecting the drive you want to initialize and partition, if you are ready, you will see a message like the one above. if you get another message it is because either the drive is being used for running Drive Setup or your System software. To initialize a drive you must be started up from either your disk tools disk, your system CD, or a separate hard drive. If you wanted to make your whole hard drive a single partition you could simply click initialize. However, since you want to partition your drive click 'Custom setup'.