Are you installing Windows 7 to a Boot Camp partition? If so Boot Camp Assistant should walk you through the steps. It's best to print out the instructions so that you will have them during your install. BC Assistant will allow you to partition your Hard Drive and then the Windows installer will format the partition for you. I too was afraid that somehow Windows was doing its own thing and was going to format my entire Hard Drive, but that is not what happened.
If you are installing to a Parallels virtual hard drive I do not recall it asking me to format anything. I'd use the menu to configure a Windows virtual machine and make the selection that you want to do so from a CD or DVD.
Please provide more information and someone will likely be able to assist you.