Following on from this question:
How/why does this work?
Is an ISO image a physical media neutral format?
An ISO is just a file describing data on a volume. Many of them tend to be the same size and type of data as you would find on CDs or DVDs, since that's where they're more useful--but the size of an ISO is completely arbitrary in reality.
You could "burn" the data from an ISO onto any volume large enough to hold it, be it flash drive, hard drive, DVD, or Blu-Ray; we just use the terminology of "burn" since that's what you have to do for optical media. ISOs can also be mounted as virtual volumes without burning them to anything--the Mac-only equivalent is the disk image, or DMG, and this is a very common method of distributing software.
To back up what NReilingh said and address your supplementary question:
Yes an ISO image is media neutral. As long as the physical media has enough space you can write an iso to almost anything.
With the right software you can even read an ISO direct from the hard drive. See the Wikipedia page on virtual drives for more information