DO NOT TOUCH IT!
Do not delete it, do not format it, do not allocate it, do not assign a drive letter to it.
It is part of Windows 7 boot up process. Upon install, Windows 7 create the 100MB System Reserved partion, and puts "boot files" there.
However, there is a way to do without it, if you really wanted to. Google "Remove Windows 7 System Reserve Partition." However, it has to be done during a new/re-install of the OS.