You simply prepare a USB stick, boot Knoppix from the ISO in some way (for 7.6.1 I used kvm, booted it as a virtual machine, see my posting about that) and run the flash-install utility. Then you can have it set up a persistent image, but whenever you don't want to use it, you use the noimage cheatcode on startup. If you don't do any remastering, you will have to manually issue a command like mount /media/sda3 (if your config files are on /dev/sda3) and copy them to their right place, for example using the rsync -axu command.