1.How much space do i require to create the VM of server 2003?
Microsoft says a minimum of 1.25 - 2 GB for 32-bit, 4GB for 64-bit. Keep in mind, that's bare minimum. You need more space for applications, etc. Personally, I would recommend at LEAST 20-40 GB if you have the space. With many Virtualization software, you can create an expanding volume so that it only allocates space for the virtual hard drive when it actually needs to write the data. There is a slight performance trade off compared to pre-allocated disk images.
2.Tell me the procedure to create the virtual machine of server 2003.
That would really depend on the virtualization software used. There are plenty of no cost options including VirtualBox, VMware Player, and MS Virtual PC. The general procedure is the same, use the function to create a new virtual machine, configure it for Windows Server 2003, provide it with your installation media, and let it install. Once the installation is finished install the Virtualization Tools/Addons, etc. depending on the virtualization product which provide drivers to improve the performance and integration with the virtualized environment.
Here's an overview of installing Windows (in this case XP, which is the desktop equivalent of Server 2003) in a VirtualBox VM.