Don't understand your question. When you say "checking the system it shows no fat disk has been done", what check were you doing and what is the result of the check?
If your Windows 98 is installed on the hard disk and you're using it, then it has already been formatted with the FAT32 file system.
If you reformat it, yes, you will lose everything on the hard disk.
If you're running out of hard disk space, yes you can clean up certain things on your computer but that's not going to give you a lot. Might be time to get a second hard disk and add it as slave.
In My Computer, what does it say about your C drive in terms of capacity, used space and free space?