I’ve been a fan of WinPE since the introduction of BartPE. In the next stage of Windows with both Windows Vista, Windows Server 2008, Windows 7 and Windows 2008 R2 it uses a revamped version of WinPE. What’s even better is that the Windows Recovery Environment (WinRE) is based upon the new WinPE image.
Instead of me giving you an overview of it though, I would like to direct you to someone who is MUCH more knowledgeable in it and has done significant research/study into this great technology. Check out Sean Kearney of Energized Tech. You can read his series “WinRE – Windows Recovery Environment” as its filled with great information on making your own recovery environment. You can also follow him on twitter.