If I'm understanding you correctly, I think what your missing is that a CD (or DVD) doesn't HAVE an .iso, it IS an .iso*. The "burn image" function is only used for .iso files that have been copied to a hard disk. If you want to copy one disk directly to another, then you have to use K3B's "copy CD" or "copy DVD" functions. When you do, just select the source drive and the target drive and you're off.
You'll also get some options in the burn panel to either make a normal copy (copy the files), or a clone copy (copy the disk image). You can also choose to do the transfer on-the-fly, or save the files or image to hard disk, either permanently or as a temporary step before burning the data to another disk (a necessary step if you have only one drive).
*Technically, a CD is a computer file system located on a removable media disk. An .iso file is simply a complete bit-for-bit duplicate of a file system, one that can be copied or transferred as you please, and which can be used to clone the original disk. Note that it's possible to save an .iso disk image onto a CD as a file, in which case you CAN have an image on the CD...an image inside of an image.
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