Actually, it doesn't lose space at all. Your 120 gig drive is actually a 114 gig drive, but it depends on whether you're talking to your operating system (114) or the hard drive manufacturer's marketing department (120).
Hard drive manufacturers use base 10 to calculate a gigabyte:
1K = 1000 bytes
1M = 1000 K
1G = 1000 M
That means a 120 gig drive is 120,000,000,000 bytes.
Computers and their operating systems use Base 2, binary (or base 16, hexadecimal), so:
1K = 1024 bytes
1M = 1024 K
1G = 1024 M
Therefore, 120,000,000,000 divided by 1024 / 1024 / 1024 is 114, not 120.
This is how marketing can exaggerate without getting sued for misrepresentation.