well, DSL mounts the usb drive, as cdrom or /cdrom
it should say, issuing "mount" in terminal
/dev/sda1 /cdrom
now, DSL must have a different partition to save to besides the one it boots from
you must make your USB 2 partitions
sda1 fat32
sda2 ext2
your usb may be sdb1, sdf1, etc
but DSL will usually recognize it as sda
you also gotta edit the syslinux.cfg on usb and tell DSL
where to save settings to
example
restore=sda2 mydsl=sda2
just put that code in syslinux.cfg entry(s)
heres more DSL boot cheatcodes
http://damnsmalllinux.org/wiki/index.php/Cheat_Codes
if you need anymore help please post