When you load up TrueCrypt and click “Create Volume”, you’ll be asked whether you want to create a container or encrypt a disk. Typically, it’s convenient to use a container file, which can be easily backed up and encrypts only your most sensitive files. Click Next and choose whether you want your volume to be hidden: if you do, a thief or intruder won’t even see the container file.
Next, choose a location for your virtual volume. Click “Select File”, browse to the disk location you want and type in a name for the container file. You can always move it later. You’ll be asked how large you want this container to be: the size you choose is a maximum, so even if you specify a 2GB container, it won’t take up that much space on disk until you’ve saved that much data
After you’ve chosen a location for your container, you must choose an encryption algorithm. AES, Serpent and Twofish are all very well-respected systems. You can also use a cascade of two or three algorithms, but remember that this will have an impact on read and write performance (see previous page). You can choose a hash algorithm here too: this is used to add a degree of randomness to the encryption, making your data more mathematically obfuscated.
Next, enter the desired size of your container (see step 2), then proceed to enter a password. The last step, shown above, is to format your new container. TrueCrypt uses random numbers here, too: wiggle your mouse as instructed to generate an unguessable number before clicking Format. Once that’s done your container is ready. To use it, click Select File in the main TrueCrypt interface, then click on a drive letter, click Mount and enter your password.