That's because cretate_compressed_fs is a file and it comes with knoppix. It's under /usr/bin.

You can copy this file to you harddrive and execute from there....

For example when i make an iso y use:

mkisofs -R -U -V "XXXXX filesystem" -P "XXXXXXXX" -hide-rr-moved -cache-inodes -no-bak -pad /mnt/hda1/knx/source/KNOPPIX | nice -5 /mnt/hda9/create_compressed_fs - 65536 > /mnt/hda1/knx/master/KNOPPIX/KNOPPIX


/mnt/hda9/create_compressed_fs - 65536 <------ i show the path where i save the file...

Good luck!