Do a google search on a program called "Drive Increaser". It is claimed to be able to convert a 1G USB stick into a 4G stick. My understanding is that it uses compression to compress everything by a 4:1 ratio.
Years ago, DOS 6.0 came with a utility called "Double Space" that could come close to doubling the capacity of your hard drive. The problem with Double Space was that it took all of your files and compressed them into a single file, then decompressed/compressed on-the-fly as you used the various files. If that file got corrupted in anyway, you lost the entire contents of your hard drive. Software like Double Space made sense when a 20M hard drive cost $500 but the gamble isn't worth it when we can buy multi-GB flash drives next to nothing today.
Ever heard the phrase, "There's no such thing as a free lunch"? (TNSTAAFL)
If you decide to use the Drive Increaser software, I wouldn't put any critical data on that flash drive.