As i understand your question... You will be able to play games and manipulate documents as long as said games, and document software runs on linux.
There's a few options, actually for the rest of the question
If you will be switching between systems, select a USB install with a persistant data option - most ubuntu varients will let you do this with unetbootin. You can use the rest of the drive as well, i believe.
Alternately you can often simply install the OS to the thumb drive, as you would a regular OS, with the install cd and partitioner. This is only a good idea if you are unlikely to switch systems (there can be wierdness due to fstab and driver related things), and needed to use a larger thumbdrive or USB hard drive, and wanted all the space accessible to linux