I use the "dd" command to create a new disk image. If you haven't used dd before, you're missing out. By specifying the "if" (input file) and "of" (output file", you can copy disks to files and vice-versa. In other words, it's a disk backup and restore tool! That Knoppix boot CD could come in handy some day.
Here I use dd to copy 4 megabytes of zeros into a file called "fs".
After I have my big empty file, I use "mke2fs" to create a Linux filesystem in the fs file. With that done, it's officially a disk image of an empty 4MB drive.