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Okay, first question on any Stack Exchange site, and Information Security seems the most fitting for this question.
Anyways, I realized that my laptop has a smart card reader. I understand that smart cards can be used to store encryption keys and the like. Is there any way that I can erase/format an old (unused) credit or debit card as a smart card?
If so, is there a caveat i.e. can only store one 1024 bit key etc.?
While the EMV chip on credit cards is technically a smart card, It is of a type that is not reprogram-able. (would be a very bad design if it could be)
Most smart cards can be used as a key source and often they can hold several keys inside. they usually employ a strategy of single-write or generate on chip for the private key itself. this also makes duplication impossible (a preferred characteristic in most cases).
If you want to play around with smartcards is often easier to get a sub variant, like the YubiKey or Nitrokey. I also strongly advise you te read up on what each type exactly is and what it can and can not do.
