Normally a TFS runs in the kernel address space, but it can be run in a colony address space. An address space is the complete range of virtual addresses that a program can use for its code and data.
The maximum size of a TFS colony address space is 1 GB. To calculate the total proposed virtual storage for TFSes, the wizard will add the total of the size of the TFS you are defining now and the size of any TFSes that may have been previously defined.
You can find more detailed help on the following elements of this window: