Built right into OS X Lion, Lion Recovery lets you repair disks or reinstall OS X Lion without the need for a physical disc.

To do this all you’ll need is an external drive and the Recovery Tool available here http://support.apple.com/kb/dl1433.

To create an external Lion Recovery, download the Lion Recovery Disk Assistant application. Insert an external drive (no bigger than 1GB), launch the Lion Recovery Disk Assistant, select the drive or partition you would like it to install on, and follow the on screen instructions.

When the Lion Recovery Disk Assistant completes, the new partition will not be visible in the Finder or Disk Utility. To access Lion Recovery, reboot the computer while holding the Option key. Select Recovery HD from the Startup Manager.

F.Y.I. the Recovery Partition is usually 650mb in size.