This is a file that actually resides on a drive. Any data inside of it is encrypted and can only be accessed by your password. To add data into this file, you will need to open and mount it with the TrueCrypt application.
Step 1: Launch TrueCrypt from your Applications folder. Click on the "Create Volume" button.
Step 2: The TrueCrypt Volume Creation Wizard will appear. Make sure "Create an encrypted file container" is selected and then click on "Next".
Step 3: Choose "Standard TrueCrypt volume and click "Next".
Step 4: Click on the "Select File..." button. Select the location where you want to store your encrypted file and select a name for it. Change the Format to "TrueCrypt". Click "Save" then "Next".
Step 5: Set the Encryption Algorithm to "AES" (Advanced Encryption Standard) and click on "Next".
Step 6: Enter the size of how much storage space you will need to store your encrypted data. This cannot be modified later. The recommended size to start with is 250MB. Do not go over 2,000MB or you will not be able to to store it on most external drives because of the way they are generally formatted (FAT). If you do need a larger space, you'll need to reformat your flash or external drive as NTFS or consider going with Full Disk Encryption.
Step 7: Specify a password. It needs to be strong like your pirate password. For recommendations click here.
WARNING!!! YOU MUST NOT LOSE THIS PASSWORD. IF YOU DO ALL DATA IS LOST AND NOT RECOVERABLE.
Step 8: Set the Volume Format as "FAT". Click on "Next".
Step 9: Move your mouse around the box for a few seconds and then click "Format".
Step 10: Click "OK".
Step 11: Click on "Exit" or "Next" to create another encrypted file.