Your microSD or microSDHC card usually comes preformatted, so there is usually no need to format it right out of the box.
If you have to reformat it, FAT16 (sometimes just called "FAT") is generally preferable for microSD cards because it's faster. For higher-capacity microSDHC cards, you don't have a choice (you have to use FAT32).
It's also recommended that you use the Panasonic formatter as Kittymat suggests.
-Bri