Uumh, you're mixing concepts I guess. That menu you talk about to format the sdcard has nothing to do with KO or any other program.
Anyways: if your sdcard is formatted as external you switch to it using + and "switch to sdcard". If you want to return to internal storage + and "switch to internal storage"
If the sdcard is formatted as internal the "switch to sdcard" is greyed out because there's no sdcard other than internal storage.
Anyways feel free to open a thread on KOReader subforum if you have other questions related to the program. My point is not that KO is what you need or is better than any other. Just that is able to read books from a external sdcard.
Have fun with your device
