Linux gets installed onto partitions.
It can use partitions on any part of the HDD, so you can arrange to have the first partition in a Win filesystem format and put Linux anywhere else on the drive you wish.
So for dual use the way to do it is to have the first partition of a USB device in FAT or NTFS.
If you arrange the partitions as you want them before installing, then choose 'existing partitions' for the install, none of the partition structure will be touched ..... just the contents of the selected partition/s will be overwritten/wiped.
There are two types of 'install' ...... a full standard install, and a portable Live install, like a CD.
The 'Live' type can go on a CD/DVD as you know, but can also go on a USB device or indeed on a fixed HDD.
For portability ...... meaning a requirement to boot the OS on many different hardware setups ..... i believe a live install works best.
It can be on external USB connected HDD or on a flash stick.
If the partition it is to reside on is prepared in Linux format (ext2, ext3) then a form of 'persistence' can be arranged, so that changes made can be retained for the next time it is used.
Because of the structure of the live session not everything can be changed, but the user account can be tweaked for personal preferences and those changes retained.
Also new applications can be installed and retained.
Those would probably be the two most important parts of such a live system.
There is some information in this thread that you might find useful for installing a Live session to USB device ...http://www.pclinuxos.com/forum/index.php/topic,74878.0.html
Probably getting into information overload now ...... so will leave it to you to read what you can and get back with further questions
yes MD5sum is the same here