Your original question was, "When I create the disk image can I add to it or do I have to set up or allocate a certain amount of size?"
A sparse disk image, as recommended in the Apple article, does allocate the entire size you specify (so it may take a while to create, copy, or move a large one). Most of it is empty at first, of course. When it's full, you can't add anymore without changing the size.
A sparse bundle disk image, however, sets only a maximum size. The actual size grows as you add stuff. Again, when full, you can change the maximum size.
If you use Time Machine to back up, you probably want to use the sparse bundle disk image. See the tan box in #D8 of Time Machine - Troubleshooting for an explanation.
If you use a "cloning" app, such as CarbonCopyCloner or SuperDuper for backups, it really won't make a lot of difference which you use. Since you probably don't back up more than once a day, backing-up an entire sparse disk image won't make much difference.