In most distributions, initramfs's main responsibility is to figure out where the OS the user wants to run is installed, mount it, and hand off PID #1 to the init binary in the mounted FS.
The reason initramfs exists is to allow the logic to do this to be part of the distribution, not the kernel. That way, distributions can have arbitrarily complicated procedures for accomplishing the above tasks. Or even deviate from the standard "find, mount, exec" pattern described above entirely: For example, if you're creating a simple embedded system where space is at a premium and your system will only ever execute one program, you might be able to save some space by statically linking the program and saving it as 'init' in your initramfs. If you compile your own kernel, there's even an option to meld the kernel and initramfs into a single file.
On Ubuntu- (and AFAIK most Debian-like systems), a set of scripts in the initramfs-tools package is used to rebuild the initramfs when a new kernel version is installed, or manually upon user request. (The most common reason for manually running update-initramfs is adding kernel modules for drivers that are necessary to access the filesystem you want to use as root, e.g. LVM or NFS.)
Why did Blackberry buy QNX?
Is divorced from any kind of practical reality, by definition.
Cease comparing apples to oranges. A sedan is bigger than a go-kart because a sedan isn't a go-kart.
If you want to use an OS that requires 7GB to install, you can. We won't hold it against you. And you can wax poetic about it.
But why is it that when someone wants to use a small system it causes people to make these sort of backlash comments?
The ironic thing here, with this example, is that demo scene actually accomplishes feats I have never seen done on larger systems. To use your analogy, the go-kart is able to do things, impressive things, the sedan doesn't do. Surely the sedan could, but it doesn't.
A union of, say, your $HOME and your dropbox account could be very neat.
You would need some sort of utility to tell the union-ed filesystem that you want to kick a file or directory tree that is local onto dropbox, and perhaps vice versa.
It has great internationalisation.
It has scary stuff that people should be careful of.
There are a few minimal Linux distributions - LFS; TinyCore, etc.
I'm not sure where TomsRtBt fits in the list anymore, but he crammed quite a lot onto a floppy disc.
We were able to create our own "from-scratch" Linux live CD that weighed around 20MiB, but ended up going with SliTaz since having someone else maintain that for you is worth the extra 15MiB :)
Seriously, if you have low hardware resources, pick a 5-7 years old distro and you'll be fine.
Shoehorning KDE4 into a 200mb distro is pretty impressive. I used SLAX a while back for a short period of time, and I might have to give it another go. Hopefully there's an easy way to remove KDE and add XFCE. Last I checked KDE desktop was checked as a dependency for nearly everything, which made switching DEs a real pain.