On the previous panel, you specified the amount of virtual storage for a TFS. This panel lets you choose whether to mount this new TFS in a separate address space, called the colony address space or in the kernel address space. You can think of a colony address space as an extension of the kernel address space.
When you have one TFS defined and it is running in a colony address space, all other TFSes will run in the same address colony space.
You can find more detailed help on the following elements of this window:
Total proposed virtual storage