There is a small internal filesystem (a drive) on the pyboard, called /flash, which is stored within the microcontroller’s flash memory. If a micro SD card is inserted into the slot, it is available as /sd.
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When the pyboard boots up, it needs to choose a filesystem to boot from. If there is no SD card, then it uses the internal filesystem /flash as the boot filesystem, otherwise, it uses the SD card /sd.
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(Note that on older versions of the board, /flash is called 0:/ and /sd is called 1:/).
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The boot filesystem is used for 2 things: it is the filesystem from which the boot.py and main.py files are searched for, and it is the filesystem which is made available on your PC over the USB cable.
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The filesystem will be available as a USB flash drive on your PC. You can save files to the drive, and edit boot.py and main.py.
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Remember to eject (on Linux, unmount) the USB drive before you reset your pyboard.