Most how-to's on this subject use tools such as unetbootin. For persistance, you are required to boot a live BT the run a load of commands in a terminal to configure your installation. For many this is a difficult process.

If you try to install to usb by using the "Install to Hard Disk" on the BT desktop, you will find that the installation routine will not let you choose your usb drive.

However:

Boot a blank VMWARE machine to your BT iso.
Insert your USB drive.
Connect USB Drive to VMWARE machine.
Run "Install to Hard Disk" from desktop of VMWARE machine.
When prompted "Where do you want to put Backtrack?" you will now be able to select "Specifiy partitions manually" and then choose your USB drive from there.

For those who don't know how to partition:

Go to sdb and remove all existing partitions.
Choose Add and create a primary 1024MB swap partition
Choose Add and create a primary 200MB ext2 partition to be mounted: /boot
Choose Add and create a primary ext partition using all available space to be mounted: /

That's it for patitioning. Just make sure that you choose sdb for "install boot loader on" and you're set.

Didn't have permission to put this in the how-to's section, but I'm sure a moderator can move this if they feel it's worthy.