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Is converting a DVD to an ISO, and then burning that ISO onto another DVD exactly the same thing as copying all the files from one DVD to another? What about if instead of copying to another DVD, I copied to a USB flash drive (i.e. DVD > USB), would it still be the same thing as DVD > ISO > USB?

If they are the same, then why does Microsoft have a specific tool for copying the Windows 7 ISO onto a USB flash drive? Couldn't I use any tool that extracts an ISO and copy the resulting files onto a USB flash drive? Or if I had the original DVD, couldn't I copy the files from the DVD directly to the USB flash drive without bothering with Microsoft's utility at all?

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The major advantage of an ISO is that burning it as an image preserves the bootloader, where extracting and burning the contents does not. The bootloader needs to go on a specific part of the CD/DVD/USB drive for it to be bootable. Just burning the contents does not do this.

The other advantage is that you can make a checksum of the entire ISO instead of each file it contains. That can be used to make sure that the download happened without error.

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For music CD's or (most) software installation programs (like MS Office), there is no difference between copying the files or using a specialized ISO burner.

The Windows DVD has to be bootable, so the computer can boot from it. Usually, the computer starts (boots) from a harddisk, on which the OS is installed. That is possible because the first physical sector (MBR, Master Boot Record) contains code that loads the bootloader.

A CD/DVD has similar functionality. This "mark as bootable" will not be copied if you copy & paste the files, therefore you'll need an ISO burner which preserves this property.

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The ISO creation preserves the file structure, along with the files of the DVD. This is what allows bootable CDs/DVDs to remain bootable when burned to an ISO and then back to its media, similar to burning the CD/DVD directly. The utility to convert the ISO to USB should in turn preserve the correct file structure of the DVD onto the USB.

TBH, I am not 100% sure all of the technicals details behind it, but I just know that the ISO preserves many things that a direct file copy does not.

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I'm a bit confused... when I copy folders/files from one folder to another in Explorer, it preserves the same folder/file structure in the new folder. Are you referring to some other file structure? –  Senseful Feb 16 '11 at 21:03
    
en.wikipedia.org/wiki/File_system A file system is deeper than just the structure of your folders and files. It gets very deep and tenuous to explain, so I am linking the wikipedia on it. –  DaBaer Feb 16 '11 at 21:06
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