I read that Live CD installed on USB flash drive has a limitation of size to 4 GB.

I assume this limitation (4 GB) regards the root file system with the system (packages installed, settings) including the data in the home partition etc?

I have two further questions related to this, please.

1. If I need more space, can I then just create another partition on the flash drive and store data there. (using e.g. GParted from Ubuntu or from its own CD)

2. Why is there a limitation to 4 GB? (Since I know that FAT32 files are limited to 4 GB size I assumed that the installation was stored in a FAT32-file on the stick but that is just a wild guess, better to ask. )