To enable the cloning of embedded systems Microsoft included a component called “System Cloning Tool” in the Component Catalog of XP embedded. System Cloning was the only supported cloning tool for Windows Embedded by Microsoft for quite some time, but in Standard 2009 Sysprep, the tool used to clone desktop systems, was also made available to enable the System Center Configuration Manager’s OS Deployment functionality. Sysprep and the System Cloning tool behave quite differently and therefore can be used to address different deployment scenarios.

The actual cloning process always takes place when the target device boots the first time. Due to this, it is not a good idea to have write filters enabled at this stage. If they are, the cloning process repeats itself any time the system boots. The cloning process is extendable by adding custom native Dlls with a corresponding entry point in target designer, but quite often OS developers tend to use RunOnce Registry keys set before sealing the image to achieve the same effect.The system cloning process itself is designed to run only once and therefore fbreseal deletes itself after the first execution.

Source: http://blogs.msdn.com/embedded/archive/2009/08/18/component-tales-system-cloning-tool-sysprep.aspx