Directly from the Docs-

PREPARING YOUR DEVELOPMENT ENVIRONMENT
At this point you should already have Knoppix copied off of your CD and in source and master directories on a hard drive. In addition to making the source and master partitions (from now on I'll just call them source and master directories because I just made two directories on one partition: /mnt/hda1/source and /mnt/hda1/master.) you will also want to make two folders on the root of this partition: boot and mroot. This will leave you with a partition having four folders: master, source, boot, and mroot. The first two you should already be familiar with. 'boot' will be where we will mount the boot.img file, and 'mroot' is where we will mount miniroot.gz, which is contained within the boot.img file. Are you with me so far? Good! Let's get started..

First of all, copy master/KNOPPIX/boot.img (or boot-en.img if you want english default keyboard settings) to the root of your partition, where the four folders above reside. Stash a copy away somewhere or make a boot.img.old. Sure, you still have a copy in master/KNOPPIX, but wasn't the one you just overwrote it with broken? oops! Hopefully you still have the original CD if things get too hairy.

Now for the fun part: 'mount boot.img boot -t msdos -o loop=/dev/loop0' will mount the boot floppy in the boot folder. Next, 'cp boot/miniroot.gz .', 'gunzip miniroot.gz', and 'mount miniroot mroot -t ext2 -o loop=/dev/loop1'.

Now we have the boot floppy with the original kernel, miniroot.gz, and config files in the boot folder. I suggest copying any other files you wish to modify to the root of your dev partition as well, or maybe make a bak or tmp folder to store your backups in. From here on, I will just assume you are backing up all original files and not bug you any more about it. Just be aware of what exactly you have modified on your boot floppy, and don't forget to unmount it before copying it back to your master folder.

PREPARING YOUR KERNEL
Do not apply the knoppix-kernel patch until you have finished all kernel configuration. If you need to go back and tweak your kernel configuration later on, you will need to re-apply the knoppix-kernel patch after you save your new configuration and before you begin building your kernel. This is because the kernel patch makes changes to setup.c, which saving a new configuration can often overwrite.