You are correct that you need to fdisk and format the drive.
But, you don't really need 2 partitions.
If the drive is large, you may want to setup multiple partitions, but it is not necessary.
You need to connect the drive to a working computerand copy the Windows 98 CD to a directory of your choice. The main limitation is to use 8 character names for the directory.
Some of the computer manufactures use C:\Windows\Options
After installing the drive in the target system, boot the system from a boot floppy.
At the command prompt, change to the drive and directory where you copied the Windows CD, and type setup.
Yes, there are directories on the CD that you could leave off. These would include program demos and samplers. You can leave off the Plus! folder if it is on your CD and you are not going to install it.
For a single system, this actually takes longer than setting up from the CD. The advantage is that you never need to find the CD when you install new hardware, or change network protocals as the files are available on the drive.
Manufactures use this technique copying the setup image to large banks of drives at once.
They also include drivers and software that they are including in the system price.