How do I make a root file system?

Steal one. Seriously though, go to the uml homepage and browse for a root filesystem. (http://user-mode-linux.sourceforge.net/)
If you want to build your own, begin by creating a zeroed out file (called root_fs):
dd if=/dev/zero of=root_fs bs=1M count=1 seek=1500
Then 'create a filesystem' on root_fs, in this case ext2: mke2fs root_fs

Steal one. Seriously though, go to the uml homepage and browse for a root filesystem. (http://user-mode-linux.sourceforge.net/)