U3 Flash drives are usb flash drives which are like any other flash drive with the biggest difference being that you can run applications directly from the drive.
Many U3 usb flash drives out in the market currently do not have the U3 technology which could be used to run any application directy from the usb flash.
The U3 flash drives are made by SanDisk.
These U3 drives support many programs (being able to run the program without installing it).
For more information about U3 Flash drives check out http://en.wikipedia.org/wiki/U3