Reader Patricia has a question: "Why can't application software be put on USB drives instead of [hard] disks?"
Actually, some software can indeed run from a USB drive (aka flash drive). And that's mighty handy, as it allows you to carry your favourite programs in your pocket and use them just by plugging the drive into any PC.
But this doesn't work for everything; many programs need to reside on the same physical drive as Windows. Heavy-duty apps like Office and Photoshop, for instance, are inextricably tied to the operating system; you could theoretically install them on your flash drive, but they wouldn't run on any other PC. And you'd run the risk of corrupting both the program and Windows.
That said, there are hundreds of apps that qualify as "portable", meaning they're designed expressly to run from flash drives. That's because they require no installation, no "hooks" into the OS; they're self-contained programs that run regardless of where they're stored.
For example, there are portable versions of OpenOffice, Foxit Reader, Firefox, KeePass Password Safe and Skype, to name just a few. Head to PortableApps for a full list and download links.
One of my favourite uses for a flash drive is to rid a PC of malware infections. That's possible thanks to various portable security programs (most notably SUPERAntiSpyware).
If you're really ambitious, you can use a flash drive to temporarily boot an entire Linux operating system. (Lincoln Spector explains how in Boot LInux From a Portable USB Drive With Universal USB Installer.) There's even a utility - WinToFlash - that copies Windows installation files to flash drives, which makes for faster, easier, and more portable Windows installations.
So, Patricia, while you can't install every program on your flash drive, you can use your drive to run lots of great programs.