This topic has come up for me recently as I found a fix to my bios freezing at the dell screen because of my flash drive being inserted. I formatted it after I installed Windows 7, to exFat, to utilize optimally the hardware and readyboost feature.
To answer your original question, I believe "dedicating" is different than the "use" option in the sense that it allows more space to be used from a given drive and in general by the system. In my case formatting with the exFat file system I was able dedicate entirely my 8GB Sandisk Cruzer USB Flash to Readyboost. When I have it formatted FAT32 I can only use half (the memory allocation slider all the way to the right) as well as Windows telling me I can't use that space for file storage while being used for system speed.
Hope this helps - Oh and when formatting a flash drive for use in anything, I think it might be best to use default settings (for allocation and all that) this may have been where I ran into problems. I don't know if it's my bios or windows 7 that didn't like the exFat and NTFS formats for the flash drive, but my computer wouldn't start using these formats.