You are leaving out many details that would allow us to answer the question. You're C drive should be your system partition, and it shouldn't have let you format it. However, if it is not your system partition, then you should be able to format it and use it for storage, although it would bug me to not be using the C drive for Windows.
Also, you didn't tell us if this partition is on the same drive as your Windows install. if so, you definitely do not want to store your system image there. If your hard drive dies, so does your chance at a restore. That's why restore partitions on OEM systems shouldn't be relied upon, instead, backup discs should be created. Ideally, you want the system image off of the computer completely.