What format should my target USB drive be so Rescuezilla will use it?
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The subject says it all.
Really any will work.
Some rules of thumb:
If you primarily work with Windows, NTFS may be your most suitable choice.
If you primarly work with Linux, use EXT4. If you create raw images of disks that are larger than 16TB (eg, using a command-line command), use XFS.
If you work with both, FAT32 is an ok choice since both Windows and Linux can read and write to it.