The Windows Embedded Compact 7 image is build on a development machine using Visual Studio 2008.
With Platform Builder you can build the operating system image and even change the source code of the OS.
To start a new image you should use an existing board support package (BSP) which already contains drivers for the target hardware.
Finally you compile the image and attach to the device to deploy the image, for example via USB or ethernet.
In case you have built an debug image you can connect Visual Studio to the device to debug the OS and your applications.