The drive is already formatted FAT32 and a previous installation left a volume label on it. You will need a W98 Boot Disk to go into DOS /Fdisk and go to Fdisk Options.  There I would delete the existing Partitions starting with Logical Drives if any, Extended DOS and finally Primary DOS, and if it has a NonDOS partition and this a drive you acquired used with that on it, delete that as well. On the line at the top of the page for each designated drive, there is a column labeled Volume Label. If it has an entry there, you must duplicate that EXACTLY in the brackets where it is requested, or no deletion will take place when you tell DOS to delete the Partition. At the end, select Display Partition Information and it should say No Partitions Defined. If you see no entry in Volume Label column, just press enter alone. When your drive is bare, then repartition  and reformat. Yes I know you're installing W-XP and I said W98 Boot Disk, but it is really a DOS Boot Disk and just happens to be the version shipped with W98. I find it the easiest to work with of the various varieties, and since it works before Windows even loads, I have used one with every MS OS out there. Even with W-XP installed, you can use it for Scandisk in DOS, CHKDSK, Fdisk, etc.

If you alread have a OS on the HDD you can see what the Volume label is. It could have no volume label but the format command will still ask for it, in the case of no label just leave it blank. If you are going to load XP you can use the XP CD disk to format the HDD durring the install process. I would suggest you format the drive NTFS. XP will be more secure and run better installed on a NTFS drive.

If there IS a volume label, it will appear above the message (what it is doing is listing all volumes on your system, so you can choose which one you want to format).  In your case, you probably have only one volume, and a volume label has never been assigned - in which case, you just hit 'enter,' (without typing in anything) and the format operation will proceed.