I guess there are 2 ways you can approach this:
- You start from scratch and build it all yourself (LFS is probably a good choice then). This gives you maximum control and is a great way to learn, but it's also pretty steep and time consuming.
- There's some existing distro that you like and take it as your starting point.
Few years ago I took the second route with knoppix. It was working great but i wanted to have a CD I could take with me while travelling and pop into any computer, and suddenly it'd turn into my home setup: same tools, config etc. Basically I'd be carrying a CD around instead of a laptop.
Normally this is done by having a usb stick where your live session changes are automatically saved but i didn't want to go this route. There were some pretty substantial changes, stuff i didn't need on the CD that'd just be wasting space, but mostly I wanted one self-contained read-only CD. So i went the remastering route.
If knoppix fits your bill you can turn it into pretty much anything you like with this (look at all the knoppix derivatives !). In addition to my changes I completely changed the boot experience, put a nice graphical grub menu, made the init script faster, added new boot options...
- Knoppix Remastering Howto
- Customizing/Remastering section in the forums.