Open up disk management and take a look at how your drive is partitioned.

Ok, I've opened disk management. It shows:
 
IN BLUE:
(C
2.00 GB NTFS
Healthy (System)
 
IN BLACK:
12.31 GB
Unallocated
 
How do I get access to the unallocated space?

Right click the unallocated space>create partition.

I've created a partition and it's now marked as 12.31 GB Healthy. But drive C is still 2.00 GB NTFS. How do I move the 12.31 GB Partition to drive C ?

You are going to have to use a 3rd party piece of software to accomplish that. I.e. Partition Magic.

There is another options, if c: is NTFS.
 
Delete the 12 gig partiiton. Then right click the drive in disk management and convert it to a dynamic disk. Then unallocated space>extend volume. You can then extend the c: volume to the full capacity without using partition magic.
 
The upside to partition magic is it does not require the disk to be dynamic. Dynamic disks can be annoying at times. For example, my Ghost 2002 software does not seem to support dynamic disks.

OK, I have gone to upgrade to dynamic disk but a message appears saying that I will not be able to boot previous versions of windows from any volume. Does that mean my existing OS will be OK, and it onys applies if Windows 98 or below is installed?

Yes, if you are dual booting to an older OS like 98, ME, you will not be able to boot to those OSes on an NTFS partition.
 
Of course if you have already changed FAT32 to NTFS then you are already comitted, simply acknowledge the dialog box.

:x OK, I did that, but it didn't work. Now they both appear as Simple Volumes and when I try to extend C it says "The selected volume was originally created on a basic disk and cannot be extended. Only volumes originally created on dynamic disks can be extended" What does this mean?

I'm guessing that if everything fit on a 2 gig partition that you don't have anything else installed. If you don't have a lot invested in this install at this point, I'd just wipe the partition and reinstall. Just pay attention to what you're selecting when you're in the partitioning and formatting of the hard drive section of the install process.
 
When I wipe out a partition I like to use a win98 boot disk and use fdisk to delete all the partitions, then just let windows create and format the partition during the install. You can find bootdisks at bootdisk.com http://bootdisk.com/bootdisk.htm I just go through all this because I want to know beyond a doubt nothing is going to follow me into my next install.
 
If you'd rather not go through that again I've had good luck with partitiom magic http://www.powerquest.com/partitionmagic/
 
Jim