Hi,
I have a created a logical partition sda5 in ubuntu server 9.0.4.
which is
Disk /dev/sda: 250.0 GB, 250059350016 bytes
255 heads, 63 sectors/track, 30401 cylinders
Units = cylinders of 16065 * 512 = 8225280 bytes
Disk identifier: 0x00053d78

Device Boot Start End Blocks Id System
/dev/sda1 * 1 1216 9767488+ 83 Linux
/dev/sda2 1217 1702 3903795 82 Linux swap / Solaris
/dev/sda3 1703 30401 230524717+ 5 Extended
/dev/sda5 1703 30401 230524686 83 Linux

formatted the device as mkfs -t ext3 /dev/sda5
then i mounted it on to a directory which belongs to root user.

once I mounted the /dev/sda5 device on to a local directory.
I am seeing that the filesystem size is way too difference than what i have created.
/dev/sda5 10325748 1098212 8703016 12% /var/lib/vmware/vmwarehosts

Can somebody please let me know where i am going wrong here. why am i not seeing the full 230 gigs which shows in fdisk.

After re-partitioning the drive to make the extended partition, did you reboot? Unfortunately, sometimes, Linux cannot re-read the partition table and so mkfs uses the previous-known size of the partition to size the filesystem. You'll need to reboot.

Alternatively, you can tell mke2fs how big a filesystem to make with something like:
The $[ ... ] expression calculates how many 4k-blocks you need to fill 230 mega-blocks.

Keep in mind, 230 Megablocks is about 210 Gigabytes (GB), not 230. You can expect 12% less than that, so about 202 GB will be free after creation.

You can get better utilization with some tweaks. Since this is going to be for your VMs, you can use a smaller ratio of inodes-blocks. Also, sparse_super should be default, but just in case....