All you have to do in this first step is choosing your USB device (drive or key) on which you want to create a Linux Live USB key.
- a USB device with a FAT32 or FAT partition *
- usually 810 MB of free space (but depends on what Linux you install) **
** If you don't have enough space, free some space or choose "Format in FAT32" in the options (step 4)
For more information about FAT32 and FAT limitation see Why does LiLi only uses FAT32 and FAT filesystems?