We are still in preAlpha on this project. It is not ready to use with children yet.
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The basics of creating a Live, bootable USB are you download a live USB .iso image. Then you use a USB creator program to copy it to a USB, create a space for users to store files on the USB and set it to be bootable.
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In practice this means the first thing you need is a Live USB creator.
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for Windows: http://sdz.fedorapeople.org/olpc/liveusb-creator-3.0.zip
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Download that file to a windows machine and install it.
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Next download current version of Sugar that we are testing for Sugar on a Stick: http://www.sugarlabs.org/~marco/liveusb.iso
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Plug in a 1GB or larger USB stick into your computer.