Windows Installer introduces a new, novel concept called advertised installs. An advertised install is essentially a setup that runs without copying any files. Any registry entries, shortcuts, file types that are installed by your setup will be created - except the copying of the actual files. Because shortcuts are created and file types are associated with the application, the install seems complete to end-users.
Later, when an actual file type is opened or a shortcut clicked, the Windows Installer service automatically copies the necessary files and finalizes the installation.