As in "life". Live-cd is any distribution that is fully installed in a CD and configureable so that the system can boot from it into a fully working environment, without requiring any modification or even the existense of a hard disk. Live-cd distributions can be useful if you just want to gain a first picture of the OS before you install it, or in cases that you need to quickly boot and use some tools for recovery, or even network/security auditing. Knoppix is the most polished live CD distribution for general use and Knoppix-STD is a fork of knoppix that includes several security-networking tools.
