You may need to defragment your C: partition and/or temporarily disable the page file in Windows. (Googling on the latter turned up a bunch of pages, most of which said not to disable the page file. That's perfectly good advice for normal conditions, but doing it temporarily may enable you to shrink your C: partition more than you can do it now.) Also, you should NOT create Linux partitions in Windows! You seem to have gotten lucky this time, but creating new partitions in Windows frequently converts all the partitions from "basic" to "dynamic" form, and Windows dynamic partitions use a proprietary format that makes it difficult or impossible to install Linux on the disk. Thus, whatever you do, DO NOT create more partitions in Windows. If you need to create more partitions, do so using a Linux tool.
Once you've freed up more space, you need to use the Linux installer (or a Linux emergency disc and a tool like GParted) to create your Linux partition(s). In the installer, you must mark one partition as the root (/) partition; that's where Linux goes. If nothing is marked as the root (/) partition, it's like telling the moving company you've hired to move all your stuff into the house while you point at an empty field -- they'll scratch their heads and ask what house (root partition) you mean.
The default Ubuntu installation uses a root (/) partition and a separate swap partition, the latter being as much RAM as you've got or a bit more. (It's used in suspend-to-disk operations or if you run out of RAM.) I recommend creating a 10-30GiB root (/) partition, swap, and using the rest as a separate /home partition. If you want to give Linux less than 20-30GiB, though, a separate /home partition may not make much sense. The advantage of a separate /home partition is that it keeps your user data separate from the OS data. This can simplify certain types of disaster recovery and re-installation scenarios.
