Some distributions have been constructed with an eye to building things like routers and firewalls. By keeping them small and simple, they are easier to make and keep secure.
Trinux: A Linux Security Toolkit
This is a small Linux distribution that integrates various security tools.
JAILBAIT's Another Interesting Linux But Also Intimidating Too
A fully-functional Linux distribution that fits into 16 MB. Many modern net-appliance-type products such as the Netpliance iOpener have an internal SanDisk device that is 16 MB in size.