For USB Flash drives you should choose exFAT.
The only exception is if you plan to use the drive to transfer files to Mac OS X or Linux operating systems without exFAT support. In which case you would use FAT32
FILESYSTEM
exFAT can detect flash media, and reacts respectably. It will make very few extra, unnecessary writes, and store files randomly throughout the storage medium. This will more than maximize the lifespan of the drive, and will speed up transfers substantially.
NTFS is not very friendly to flash media, at least to my knowledge. It makes many many extra disk writes almost constantly, and will degrade the life of the flash drive. It is not faster, and kills your drive faster.
ALLOCATION SIZE
Allocation size should be adjusted with respect to what the drives intended use is. If you don't know quite yet, leave it at default.
For many small files, allocate as small as possible.
For many large files, allocate as large as possible.
For a few large files, allocate as large as possible.
For a few small files, allocate as large as possible.
Small file = <25kb
Large file = >1mb
[Explained]: Allocation size is the size of each little "block" that makes up the entire partition. A files will take up as many of these little "blocks" as it requires. Any remainder left over in the final "block" that the file occupies will be unusable.
Small allocation = [ |x|x| | | |x| | |]
Pro: Files will fit more snugly with smaller allocation, thus maximizing total space.
Con: The performance will suffer.
Large allocation = [---xx| |x-----|xxxx|]
Pro: Read/Writes are faster, great for larger files
Con: Small files take up more disk space than expected, losing much when dealing with many small files. (smaller than allocation size)
***Had to correct the information in this thread due to it being on the first page of Google.