After you've booted from the CD/DVD, you should be asked to select a language. Select one, then click the right-arrow icon to proceed.
Once on the next page after selecting a language, select "Disk Utility" from the "Installer" menu at the top. When Disk Utility opens, you can use it to partition and/or format your internal drive.
Once formatted/partitioned, quit Disk Utility, and the Mac OS X install process will pick up where it left off.