ok let us start, back early, we know about livedisk, where you can run OS from removable disk, where you dump the OS to the RAM. it was started with linux, but with bartpe windows live cd follows.
then linux introduce the use of usb for both live OS and OS installation, this took several years before we have windows 7/2008 that making installation windows using usb easy. you just need to use these four steps (two is essential):
– makes windows 7/2008 dvd ready in the drive tray.
– format the flashdisk.
– using command line, enter the windows dvd drive then type in its root: boot\bootsect.exe /NT60 [flashdisk drive]
then type, still in its root:
xcopy *.* /s /e /f [flashdisk drive]
(or using windows explorer copy all files from the windows dvd, including the hidden one to the root of usb flashdisk.)
*Note, in order for you to be able to use bootsect.exe make sure your system is the same bit with the windows dvd, e.g. your windows is xp 32 bit, then the windows 7 dvd is the x86 version not the 64 bit version.
but there is a run around for that, you can use the bootsect.exe from 32 bit version but copying the 64 bit version and vice versa.
and there are other software that can make bootable usb, personally since those steps above won’t work for xp, so I use Novicorp WinToFlash – currently in beta – to create the usb windows installation.
btw. you still cannot create x64 usb windows 7 installation disk on 32bit system (xp or vista/7/2008). so the manual steps above is better.