The NSLU2, as you know, can boot without any external storage (such as a hard drive or flash disk) attached, with the Linksys stock firmware
In fact, the NSLU2 has a 'flash memory' chip internally, very similar to that in a Compact Flash card. In the stock NSLU2, this Compact Flash card contains all of the Linksys software (including the small Linux Operating System). The external hard drives and flash drives are only used to store the files contained in the network shares.
When you install the Unslung firmware, it gives you much greater flexibility, which may make you think that you can use the internal flash space to hold files and install new programs. Unfortunately, the onboard flash chip is only 8MB. This means that there is only just enough space for the Linux OS, the Linksys configuration software and the Unslung tools. If you try and install anything else onto the Flash disk after installing Unslung, you will almost immediately run out of space on the internal flash and make your slug unbootable.
To avoid this, you need to use Unslung's 'unsling' functionality. This diverts the slug, as it boots, so that it looks for your USB hard drive or flash card, and if it is present, boots directly from that external drive rather than the 8MB onboard flash. Put simply, when you unsling, you no longer have this major space restriction, and can, within reason, install whatever you like without worrying.