They are actual distributions that include the kernel and modules necessary
to make it run. They are limited only because the medium they are
distributed on is read only. You can copy the same ISO to a usb stick and
make it writable by adding persistence (see: pendrivelinux.com) and it is
not any different from having it installed to a hard drive. You can install
applications and save data.

You can work from a Live CD and save to a usb key using OpenOffice for
example. The problem with Live CDs is their lack of speed. Some
distributions like SystemRescueCD or Parted Magic do not need anything other
than what is supplied on the disk. They are complete as they are because
they have only one purpose and installing them would defeat their purpose.
They are usually meant to run from a RAM disk.

Live CDs are compressed versions of the installed distribution. The big
difference is that Live CDs do not have users and user space configured.
Some will have both Guest and Root accounts and even have passwords (usually
the same thing or the reverse eg. toor) and other distros have only one user
level, without a password.

http://en.wikipedia.org/wiki/Live_CD

Roy

By the way, are LIVE CDs classified as actual distributions or just
> considered to be heavily-tweaked versions of 'real' distributions?
>
>

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