The "system space" that the defrag tools refer to is typically the space taken by the MFT. Some of the defraggers will allow you to adjust this amount of the reserved space. You should take into account the number of files you expect to hold in the partition and set the MFT size accordingly. If you reduce it too much and later store more files on the disk than predicted, the MFT will grow but will be fragmented, which will delay file location on the disk.
On my system, each file entry takes about 1K on the MFT (includes file name, attributes, permissions, physicall location, etc) - 192M for 197.000 files, MFT almost full.
I find it odd that you have an MFT of 20G, that would mean space for about 20 million files. Are you sure that the "system space" is all of these 20G?
This is certainly what's happening:
When HDD manufacturers say 250GB drives, they really mean 250.000.000.000 bytes, not 250*1024*1024*1024. So, it's only 232 *proper* GB. That's where the extra 20G went
When you tell windows to create the first partition with 120GB, it uses 120 actual GB, which is 128.849.018.880 bytes. When you create the second partition with the rest, there are only 121.150.981.120 bytes left, which is 112GB.
So, you see, you haven't purchased a 250GB drive, but a 232GB one
Still, you didn't have a choice since all of the HDD manufacturers use these "strange" GB unit, to say the least.
Now, the MFT (or "system space") does exist, and takes some of these 112GB from the second partition (and also the first), but is should be only 200 or 300M, not 20G.
JMI, for your 120.000.000.000-byte drive, the calculation is the same - 120 "GB" = 111 REAL GB