The command will perform the following actions by default on a floppy drive, hard drive, solid-states (USB), or other magnetic medium. It will not perform this function on optical media.
The FAT entries are cleared by changing them to 0x00.
The root directory is cleared out by changing any values found to 0x00.
Format then checks each cluster to see if it is good or bad and marks it in the FAT.
Optionally, (by adding /S, for "system") it can also install a Volume Boot Record. When this option is included, bootstrap code is written to the first sector of the volume (and possibly elsewhere as well). FORMAT always writes a BIOS Parameter Block to the first sector, with or without the /S option.
Another option (/Q) allows for what Microsoft calls "Quick Format". With this option the command will not do the 2nd and 3rd step, above. Data previously written to the media will not be altered by the command.
If you would type "FORMAT" with no parameters in MS-DOS 3.2 or earlier, it would automatically, without prompting the user, format the current drive, however in MS-DOS 3.3 and later it would simply say "required parameter missing".
Any storage device must have its medium structured to be useful. This process is referred to as creating the file system in Unix, Linux, or BSD. Under these systems the more robust command called "mkfs" exists. It creates many kinds of filesystems including those used by DOS, Windows, and OS/2.