When you put your windows 7 Disk in, reboot your computer and boot it to the CD by going to the boot options menu. You can get here by pressing:
(Depending on the brand)
ESC, F2, F8, F10, F12
When you turn your computer on, it will say the brand of computer it is, (ex: Dell, Toshiba, Compaq, HP ect... )
On the bottom of this screen it will tell you the buttons to push for specific functions.
Once you get the computer to boot to the cd, the windows 7 setup will run and it will ask you how you want to install it. It will have the choice of "Custom" or "Upgrade"
Choose "Custom"
At this next screen, it tells you information about your Hard drive.
Go to Options, this allows you to delete previous saved Partitions of the hard drive.
You want to delete everything so that all you have left is a single "Unallocated space"
Once you've done this, you should have enough space to continue with the full installation.
Good luck, and I hope this helped.