Frugal is a standard method for installing Puppy Linux. The Linux system files are stored in a single compressed file.
In more technical terms it uses a layered file system. The base SFS, other SFSs and PupSave file remain compressed in filesystem-in-a-file files. However they appear to the user in the terminal and File Manager as the Linux RootFS which normally expanded over a whole partition. Any changes or additional files are added to the PupSave file. Apart from files in the /mnt/ directory which is used to specify mount locations.
This method allows the whole OS to be loaded into memory. Additionally, you can have multiple installations on one partition and even install to a Windows partition.