Quotes denote the command to type, do not type the actual "s

Launch the DiskPart utility by typing "diskpart" at the Start Menu.

"list disk" //command to find the drive with appropriate size.
"select disk 1" //where the "1" is actually the corresponding number of your USB
drive.
Make sure you choose the correct flash drive if you have more than one of the same
size.
"clean" // removes all partitions
"create partition primary" //bootable partition
"active"
"format fs=ntfs quick" //can use fat32 if all files on drive are something like 3gb
or smaller.
You should not need a boot sector on a usb drive. Most motherboards allow booting
to usb drives.
"assign" // command gives the USB drive a drive letter, making it easy to access
from Windows Explorer

You are done with diskpart, type "exit" //dont need quotes

Then you can copy everything from the Windows 7 installation DVD onto the USB key
(a simple drag and drop will do).
I would not reccommend extracting directly from iso to flash drive. It will take
forever, and burn up your drive.
Instead, extract to hard drive first, then copy or cut/paste to the drive. Make
sure you do not put the files in a subdirectory or
the drive will not boot.

when installing from USB boot and enter bios setup (usually del key on bootup)
Find where it lists the hard disk boot order. (usually some kind of boot section)
Select hard disks and put the usb drive at the top of the queue with the c drive
you install to just below it.
Save and exit bios (usually f10)

The installation will now proceed as usualbut faster.

You can remove the usb flash drive after the first setup reboot, it won't use it
anymore.