'Formatting Disk' scared me to death!

I'm new to this. Running the demo of Parallels 4. Installing Windows 98 (I know it's old but it's the only version I own). Everything seemed to be going fine. Parallels installed. Creating a new Virtual Machine for Window 98. When suddenly it announced that it was formatting my hard drive C. Panic! I cancelled the install. I really don't understand this MSDOS-speak - what and where is 'Drive C'? Not my boot drive is it? Is it safe to continue on? Please, calm my nerves.

TIA, Tuck