
Steps 1 through 4 in this slideshow to properly format the drive. This drive must be at least 5GB in size (an 8GB flash drive works well), and it must be formatted with a GUID Partition Table.

The mounted volume is called Mac OS X Install ESD. This mounts the disk image’s volume in the Finder.

In Disk Utility, select InstallESD.dmg in the sidebar, and then click the Open button in the toolbar.To create a bootable hard drive or flash drive

I recommend a hard drive or flash drive-a DVD will work, but it takes a long time to boot and install. The next steps depend on whether you want to create a bootable hard drive or flash drive, or a bootable DVD. Right-click (or Control+click) on the Lion installer to view its contents. Drag the InstallESD.dmg disk image into Disk Utility’s left-hand sidebar.Launch Disk Utility (in /Applications/Utilities).In the folder that appears, open Contents, then open Shared Support you’ll see a disk-image file called InstallESD.dmg.Right-click (or Control+click) the installer, and choose Show Package Contents from the resulting contextual menu.

It’s called Install Mac OS X Lion.app and it should have been downloaded to /Applications.
