You can simply ignore the OS X Base System volume. You will do nothing with that. It's only 2GB and a repository for OS resources accessible only by the OS.
It appears that iMac is equipped with a 24GB SSD and a 1TB HDD. This will normally be configured as a "Fusion Drive" with both drives behaving as a single device in the Finder and on the desktop.
For the purpose of wiping this Mac, you will want to format the internal drive device. In the Disk Utility menu bar, click View > Show All Devices. This allows you to select the drive device rather than only volumes on a device. The device will be the top-most listed in the left pane of the Disk Utility window, not an indented volume listed below.
As this also appears to be currently formatted with APFS (required for newer macOS versions), so you might first be required to delete the APFS volumes before you can format the drive. If necessary, select each APFS volume indented below the drive and then click the minus (–) button to delete. Then proceed with formatting.
To reinstall Sierra, you must erase & format the internal drive with Mac OS Extended (Journaled) format and use the GUID partition map. Give the drive the name Macintosh HD.
Once you have reformatted the drive, you can quit Disk Utility and return to the Mac OS Utility window and try the Reinstall Mac OS again.
Since you are preparing this Mac for sale, when the re-installation is complete and the Mac reboots, you do not need to step through the Mac OS setup. You can quit the setup or shut down the computer and call it good. When the new user first boots the computer they will be prompted to setup the Mac as if it were fresh out of the box.
Please see: Disk Utility User Guide for Mac - Apple Support
Also: Add, delete, or erase APFS volumes in Disk Utility on Mac - Apple Support