initdb creates a new PostgreSQL database cluster (or database system). A database cluster is a collection of databases that are managed by a single server instance.
Creating a database system consists of creating the directories in which the database data will live, generating the shared catalog tables (tables that belong to the whole cluster rather than to any particular database), and creating the template1 database. When you create a new database, everything in the template1 database is copied. It contains catalog tables filled in for things like the built-in types.
initdb must be run as the user that will own the server process, because the server needs to have access to the files and directories that initdb creates. Since the server may not be run as root, you must not run initdb as root either. (It will in fact refuse to do so.)
Although initdb will attempt to create the specified data directory, often it won't have permission to do so, since the parent of the desired data directory is often a root-owned directory. To set up an arrangement like this, create an empty data directory as root, then use chown to hand over ownership of that directory to the database user account, then su to become the database user, and finally run initdb as the database user.
This option specifies the directory where the database system should be stored. This is the only information required by initdb, but you can avoid writing it by setting the PGDATA environment variable, which can be convenient since the database server (postmaster) can find the database directory later by the same variable.
Selects the user name of the database superuser. This defaults to the name of the effective user running initdb. It is really not important what the superuser's name is, but one might choose to keep the customary name "postgres", even if the operating system user's name is different.
Makes initdb prompt for a password to give the database superuser. If you don't plan on using password authentication, this is not important. Otherwise you won't be able to use password authentication until you have a password set up.
Selects the encoding of the template database. This will also be the default encoding of any database you create later, unless you override it there. To use the encoding feature, you must have enabled it at build time, at which time you also select the default for this option.
Other, less commonly used, parameters are also available:
Specifies where initdb should find its input files to initialize the database system. This is normally not necessary. You will be told if you need to specify their location explicitly.
By default, when initdb determines that an error prevented it from completely creating the database system, it removes any files it may have created before discovering that it can't finish the job. This option inhibits tidying-up and is thus useful for debugging.
Print debugging output from the bootstrap backend and a few other messages of lesser interest for the general public. The bootstrap backend is the program initdb uses to create the catalog tables. This option generates a tremendous amount of extremely boring output.