What I wanted to do is to setup a small networks which is like the HP-UX setup at my school.

At my school there is one server ( which is a complete PC) and several terminals ( which is a complete PC with out any hard drive). All hardware are HP-UXes.
::::This setup was told by my system administrator:::


So my can I setup a same network using intel base PC with Redhat 7.2. Let say I have two PC. PC 'a' and PC 'b'. PC 'a' will be the complete pc and PC 'b' is going to be the terminal.

Is this psossible? Or did my school's system admin just bulls me?!

My curiousity though, how do the terminal boot and login to the server without any harddrive to hold any OS?

you have to boot into memory, which isn't too hard, (can even do it with RH boot cd), but then you need some to put your OS system files, and it should work without problems
but first you need to compile kernel that will support your hardware including NIC

Well if you don't have a harddisk you'll still have to boot from some device. Either floppy or cd or some cards are able to boot from network. But this howto should explain more about how it works:

http://tldp.org/HOWTO/Diskless-HOWTO.html