Take a look at the MySecurity utility on the manufacturer site.
I have one of the Swissbit memory knives and it uses their SecureLOCK tool to manage security. Though that tool will likely not work on your device (it probably requires hardware support), the page gives a pretty good idea of how a typical USB security tool works.
The idea is that you copy the little EXE file onto the memory device and then run it. It allows you to partition the device into a private and public areas. When you plug the device in, you see two drives on the machine. One has your public partition; the other only has the EXE file. You then click on the EXE to pop up a password dialog. When you log in, the device automatically remounts the private drive as unlocked.
NB: My device requires administator privs to allow you access to the private partition. Must be something in remounting the drive that mortal users cannot do in Windows.