A cluster is the minimum unit of file space on a hard disk or disk partition; also known as an 'allocation unit'. If the cluster size is 16KB, then a 1 KB file and a 7 KB file will each take 16KB of actual disk space; a 17KB file will take 32KB. Clearly smaller clusters make more efficient use of hard drive space, however there can be a small trade off in performance terms due to increased fragmentation.

FAT32 CLUSTER SIZE
Cluster Size Minimum Partition Size  Maximum Partition Size 
4 KB 0.5 GB 8 GB
8 KB 8 GB 16 GB
16 KB 16 GB 32 GB
32 KB 32 GB 64GB

NTFS CLUSTER SIZE
Cluster Size Minimum Partition Size  Maximum Partition Size 
0.5 KB 0 GB 0.5 GB
1 KB 0.5 GB 1 GB
2 KB 1 GB 2 GB
4 KB 2 GB 4 GB
8 KB 4 GB 8GB
16 KB 8 GB 16 GB
32 KB 16 GB 32 GB
64 KB 32 GB 64 GB

Note that if you use the option to convert a partition to NTFS during installation of Windows 2000, or choose to format an existing partition the cluster size will always default to 0.5 KB, due to the alignment of FAT structures.