I've been reading through the help files and getting confusing information. On the one hand, it states that the initial backup wizard can resize your C partition if that is all you have, and then create a new partition for storing backups.
In another help section, it states that you need unpartitioned space to create a new partition, or one of the existing partitions needs to be deleted in order to create new partitions of different sizes.
I haven't been able to find the answer at their website either. I used Partition Magic to set up my hard drives, so I never really got to check out that feature of Drive Image. Wish I could give you a better answer, but if I ever find out for sure, I'll post back.