[enterneo]

I am not able to understand how a 3.7GB install image can later fit into a 650MB recovery HD partition (and if it somehow could through some compression magic, then why not compress it even before to only give me 650MB to download from the app store)?

[alexmchale]

My total guess would be that the 650MB image just provides you a mechanism to download Lion again. Or perhaps it's a machine-specific rev? My instinct says the former.

[ugh]

Yup, your guess is right. Lion will be downloaded again if you install from the recovery partition.

[astrange]

The recovery partition doesn't need to contain the entire OS.

[enterneo]

but there is also an option to install Lion from that recovery HD partition.