Right after the first round of Surface devices released from Microsoft in June 2012, many early testers and reviewers were concerned about how much storage space the operating system actually consumed. At the time, the Windows 8 install would leave as little as 16GB free on the 32GB devices and 45GB on the 64GB devices. For a lot of people, that was a big problem and it generated a flood of backlash. Some went as far as to delete the Recovery Partition on their Surface devices to free up a measly 7GB or so. Of course, in doing so, they also destroyed any hope of recovering the device after an OS disaster or a corrupted or failed monthly update.

At Build 2014, Microsoft announced that Windows 8.x licenses will be provided at no cost for devices with screens less than 9 inches in size, allowing manufacturers to build devices that compete directly with Android in cost. That's good news, but there's still that glaring disk space consumption issue. Smaller and cheaper devices are, obviously, going to come with reduced storage capacity.

So apparently, Microsoft has been working on that. It makes sense that the company would now, understanding that it is looking to push Windows 8.x for smaller and cheaper devices.

With the release of Windows 8.1 Update 1, Microsoft is introducing Windows Image Boot (WIMBoot). Basically, WIMBoot is a full set of OS files that are installed on a special partition on the storage device and compressed. When files are accessed, they are uncompressed on the fly with no evident impact to the user. Even when a user navigates the storage device through Explorer (or some other app), the directory structure still looks the same as always. To take advantage of WIMBoot, though, the operating system needs to be installed in a special manner. The process is currently a manual process and is not yet supported by Microsoft's deployment tools like WDS, MDT, and System Center Configuration Manager. Using WIMBoot, a full OS installation could take as little as 3GB of storage space, leaving the rest available for apps and data.

Source: Microsoft