When I enter the 'df' command, I notice that I see:
/dev/root 28672 28248 99%
What is that memory for? Can I format/clear it somehow?
It is all the stuff your zaurus needs to boot and run correctly. You can clear it, but you most probable don't want to. It's mounted read-only be default - so people who don't know better can't delete important stuff by accident - so any free space you might create is wasted as you can't use it normally
Is it affected by flashing my Z?
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Yes, the Cacko roms and a few others allow you change the size of the read-only area to use more of it for read-write area. Cacko does this by putting stuff in a squashfs filesystem and mounts it at boot time.
Stu