How to make a virtual USB drive in Windows?

You can use ImDisk to create a removable USB drive

imdisk -a -s 536870912 -m R: -o rem -p "/fs:ntfs /q /y"

-a      Attach a virtual disk. This will configure and attach a virtual disk
        with the parameters specified and attach it to the system.
-s      Size of the virtual disk. Size is number of bytes ...
-m      Specifies a drive letter or mount point for the new virtual disk ...
-o rem  Specifies that the device should be created with removable media
        characteristics.  ...
-p ...  The 'format' command to create a filesystem when the new virtual disk has 
        been created. "/fs:ntfs /q /y" is: Create an NTFS filesystem with quick 
        formatting and without user interaction.

How to install

• For a CMD version download ImDisk Toolkit, extract it with 7-Zip and copy these 2 files:

    ..\cpl\i386\imdisk.cpl
    ..\cli\i386\imdisk.exe
  

• For a GUI version download ImDisk Toolkit and just install it.

Further links

• Full command line syntax : http://pastebin.com/raw.php?i=RZMh3QPQ
  Alternatively: "ImDisk help" at GitHub.
• Support forum: http://reboot.pro/forum/59-imdisk/