MacOS – Can Disk Utility format an SD card with FAT32

Is it possible? Yes

Based on your comment, why?

VMWare Fusion runs Windows 7 virtually. Therefore you don't need a partition for it, the OS will simply be installed in a Virtual File on your current HDD, which will grow based on how much space it is using up to the maximum set when you created the virtual machine. Fusion only allows you to use a partition if your using Bootcamp to run Windows already.

Furthermore, Fusion allows you to share folders on your OSX drive with the Virtual Machine directly, without needing to format a partition beforehand, and can also write to your OSX drive natively.

Remember, you are basically running both operating systems at the same time, and Fusion, like Parallels, completely integrates and shares between the 2 operating sysems seamlessly.

What you are referring to in your question is dual booting using Bootcamp, where you can only access one operating system at a time, and no sharing is done.

Taking aside the part that says which OS a particular filesystem is associated with, the main point is the word "journaled".

I include the following Wikipedia quote as there is no point re-inventing the wheel:

A journaling file system is a file system that keeps track of the changes that will be made in a journal (usually a circular log in a dedicated area of the file system) before committing them to the main file system. In the event of a system crash or power failure, such file systems are quicker to bring back online and less likely to become corrupted.

Taking that to one logical end, an external drive is by definition more likely to be removed from the system than an internal drive. It's not possible to remove your laptop drive and keep the OS running, but perfectly possible with something USB or Firewire attached for example. As such you run a greater risk of changes that need to be written to the drive failing to complete should you remove the drive too quickly, or without following the correct eject procedures.

Particularly if you use any form of caching, the data may be waiting to be written to the disk at the point of removal, thus losing your data.

A journaled filesystem helps to prevent too much damage in these scenarios by keeping a log of all changes it needs to apply, and noting when they are successfully completed. In this way it can examine the log on a restart and work out of there are outstanding changes that were never completed. This is far faster than simply running a chkdsk or similar command to check the entire filesystem for problems which you would need to perform on a FAT32 file system.

In addition to the protective side of things discussed above, is the fact that a HFS filesystem has all the Mac OS X hooks built in for automated indexing, backup, version control and so on that would not be possible on a FAT32 enabled filesystem.