If you really want to use the dd command, you could clone your HDD and pipe it to a zip file so that the free space will be compressed:
Code:
sudo dd if=/dev/sda bs=10M conv=notrunc | gzip -c > /media/sdb1/sda_image.gz
The above command will copy the entire sda drive and save it to a file "sda_image.gz" on the sdb1 partition if you first mount the sdb1 partition to /media/sdb1 (just an example). If you need more specifics, let me know, but I think the above command would work well to compress the HDD image.
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