I couldn't possibly have said it better:
Live Linux CDs are a simple concept with many possible uses. Here are 10 things you can do with a live Linux CD.
1. Try Linux without installing it
Knoppix is the "mother" of all live Linux CD's. It comes with 2 GBs of software making it the perfect distribution to try Linux with.
2. Use as a portable desktop
Slax fits on a small 8cm CD making it literally pocket sized and contains enough software to be useful for everyday use.
3. Maintain hard drive/recover dataSystemRescue CD includes a host of tools for maintaining a hard drive including a partition manager and resizing software and drive imaging software. SystemRescue CD can read a variety of file systems including Windows NTFS.
4. Install LinuxMEPIS Linux can be run from the CD to try it out and then installed from the running distribution in a very friendly environment.
5. Try Linux softwarePCLinuxOS is similar to MEPIS in that it can be run and installed from the CD. It also includes some of the best Linux software available for you to try out.
6. Reset forgotten Windows passwordsAustrumi is a good little live CD distribution that includes a tool at boot that allows you to reset forgotten Windows passwords (including Administrator).
7. Build your own distributionDamn Small Linux is a fantastic 50 MB distribution as is or that you can personalize with your own choice of software using the very easy to use myDSL system.
8. Watch/listen to multimediaMovix is a live distribution designed just for playing audio and video files from the internet, CD and DVD.
9. Play gamesMorphix is a modular distribution that has a version just for playing games.
10. Scan safely for virus'sINSERT is the INside SEcurity Rescue Toolkit and includes an anti-virus package making it a great way to clean an infected computer.
This is a small selection of all the live Linux CDs, Frozentech has a comprehensive list.
OSnews also reports that you can run a Windows X Server from a liveCD:
XLiveCD is an X Server that runs off of a Live CD for Windows. Put the CD in the drive and the X server and an Xterm both autostart, allowing you to ssh into a machine and run X-forwarded applications. This is great for use in public labs where you may want to run those remote Linux apps and don't have an X server installed. Built with Cygwin and a few other packages. See the home page for downloads, or just grab the torrent here.
Slashdot argues that you can also play gazilllion games with a live CD. Here's the post:
Quiberon writes "A distribution of Knoppix loaded with games has a bootable CD with 700 MB of open-source games, 3d support for NVIDIA, ATI, and Intel Extreme, gamepad support for XWindows. uni-kl is University of Kaiserlautern, the first on the list for distributing SuSE fixes - they are good. Every kid should have one for Christmas morning."