You do everything through Airport Utility. From Airport Utility help:
To erase the internal AirPort disk in a Time Capsule:
Open Airport Utility, located in the Utilities folder in the Applications folder on a Mac, and in Start > All Programs > AirPort on a Windows computer.
Select the Time Capsule that contains the internal AirPort disk you want to erase, and then click Manual Setup.
Click Disks in the toolbar, select the internal AirPort disk, and then click Erase.
Choose a security level from the Secure Erase pop-up menu.
Steve