Free space on a partition and unallocated space on a hard drive are two different things.
Free space on a partition is space that is not already being used for data, but it is already formatted.
Unallocated space on a hard drive is space that has not been partitioned or formatted.
By default your operating system partitions the entire hard drive, so there is no unallocated space on it.
(Actually, in 2000 or XP there is a little bit that is unallocated if the operating system prepared the hard drive, but only about 8mb - that's another subject - 2000 or XP won't let you partition and format that space)
If you have a brand name system software installation, the original hard drive always has two partitions; otherwise, the default is it has one partition that occupies the entire hard drive.
"You can't do that using WinXP only."
Whatever number of existing partitions you already have, you can't change that situation in XP (or 2000) unless you delete at least one partition, often the C partition, in which case you lose all the data already on it.
"You need a third party partitioning software."
If you use a third party program that can manipulate partitions, you can make existing partitions smaller to free up un-allocated space on the hard drive, then that un-allocated space can be partitioned and formatted as it's own partition and have it's own logical drive letter, without you losing data already on the hard drive.