FAT stands for "File Allocation Table" - and it is just that. Some kind of index, that the operating system (OS) uses to store the real position (in the hard drive) of each single file. The OS uses an area of the hard drive, which is not visible to the user, to store that index. This is a restricted area, and its size will be unusable for your files. This is why most hard drives show different values between real size and available space...
How does it work?
FAT file systems store the exact position of the beginning of each file (this means, sector, cylinder and disk-plate number) in the drive. Don't worry about this, it will be made automatically. You'll never know those values. Then, the file will use as many basic "blocks" (or clusters) in the drive, as to store the full data.
Depending on the number of bits used to describe your drive "addresses", you will have more or less available clusters. Of course, if you define just a few clusters, they will be "big", because you distribute all available drive space among them. But be aware, only one file (or part of it) is allowed per cluster. If your files are "small" (i.e. 1 Kb), you will lose a lot of available space, when your clusters are 32Kb in size. This is why some OS indicate (if you check file or folder properties) real size and used size in the drive, which may be different.
So, what's the use for me?
You may never have to work with FAT configurations. Either FAT16 of FAT32 (the number being the number of bits used to define the drive addresses). But here is the funny thing:
When you erase a file, it will not be deleted at all. Really. Instead, the entry in the index is removed, which should be the same, in the end. You won't find the file any-more, looking at the index. But if you ever find that you deleted all your photos in the memory card, don't go crazy. They are still there - as long as you don't overwrite them with new pic's.
Find yourself the right Software, it will scan the whole drive space looking for your (non-indexed) files... Good news, huh?