It's tough to talk about ReadyBoost without some working knowledge of how the operating system deals with memory. That's why I am going to talk about it a bit. Basically, the amount of RAM (Random Access Memory -- usually referred to as simply, "memory") your computer has dictates how many things your PC can efficiently do at one time. The analogy I like to use is a physical desk. The amount of file cabinets you have dictates how many files you can store. But, when you want to work on this files, you need to take them out of the filing cabinet and put them on the desk. You can only have so many files (think manila file folders) open on your desktop before they become buried under one another. The bigger your physical desk is, the more files you can have open at once. What happens once you have your desktop covered in file folders? If you want to work on another file, you need to move one from your desktop down to the floor. When you need to reference one of those files on the floor, you have to reach down to get it. This slows down your work process.
Obviously, getting a bigger desk is the way to solve this problem. The bigger the desk, the more files you can have open at one time. But, there are space and cost considerations here. Bigger desks cost more money and your office has a limit on how big your desk can be (without knocking down walls, which is a whole separate conversation). What if, in order to increase your efficiency, I gave you a little table to sit next to your desk onto which you could place open files? It wouldn't be as fast as if they were on your desk, but it would be faster than if you had to put them on the floor! This would help you by cutting down the time you spend moving files to and from the floor. It would, in essence, let you have more files open in a place where you could get to them quickly. So, in the physical desk analogy, we have:
1. On top of the desk -- fastest access to open files
2. On the little table next to your desk -- pretty fast access to open files
3. On the floor -- Slowest access to open files
4. Filing cabinet -- closed files only
Your PC works exactly the same way as the desk reference above. It has a hard drive. This is analogous to your filing cabinets. Files are stored here. The larger your hard drive, the more stuff it will hold. But, RAM is what determines how many things can be open at one time. It's the desktop of your machine. (Using the word desktop to refer to the physical desktop in the analogy -- not your PC desktop.) The floor represents what's called the page (or swap) file. Once you've reached the limit of what you can store in memory and you try to open another program or file, Windows will cache something you already have open. It dumps this data into a file on your PC (called the pagefile or swapfile) and frees up room in memory for the new file. With me so far? Good.
Vista introduces something new for users -- the little table next to your desk. (Of course, the marketing department didn't consult me when they came up with the name, so they called it ReadyBoost.) As shown above, that little table makes access to your open files faster than if they were on the floor. ReadyBoost does the same thing. It uses USB memory (such as a USB thumb drive) to provide your machine with that little table between the RAM and the page file.
Inserting a USB drive (this needs to be a device capable of working with ReadyBoost) into your PC brings up a menu which offers you the chance to "Speed Up Your System," as shown below.
Clicking this button will bring up the ReadyBoost dialog, which lets you determine how much space you want to dedicate on the device to ReadyBoost. (You can use the device to store files as well as function as a ReadyBoost device.)
That's all there is to it. The system will now automatically use the USB device as "the little table next to your desk" to speed things up. And, as a plus, you understand how it works (on a theoretical basis). It isn't as fast as installing more RAM, but it beats reaching down to get the files off of the floor!
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"The Last and Final Chapter" -- that sounds ominous, doesn't it?  Maybe "Windows