Format Virtual Disk

I'm following this guide:

However, I'm at the part where the author says "Remember to partition in Disk Utility first!", but I'm not sure how to do this. I'm in Disk Utility and my 32 Gb virtual disk's "format" button is greyed out. How exactly do I do what the author of the guide is recommending? I'm a macOS noob, haven't used it since I was in grade school.

submitted by /u/AnyBird8
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