System 7 will not fit on an 800K floppy. However, you can use the
Installer to make a bootable 1.4MB floppy.
To create a bootable 1.4MB System 7 floppy, use the Customize option of the
Installer to install the Minimum System for your Macintosh. This creates a
bootable version that is very limited and contains minimal functionality
for the Macintosh. Apple recommends that you not use this disk as your main
system, but only as an emergency disk.
Bootable disks are also provided in both the System 7 800K and 1.4M disk
suite on the "Disk Tools" disk. The 800K format contains a 6.0.X bootable
system and the 1.4MB format contains a 7.0.X bootable system.
Custom installation lets you select the exact combination of system files,
drivers, and other resources you want. You can use this process for initial
installation, for updating to a new version of System software, for
installing a single, special resource, or for saving space on your startup
disk by eliminating software that isn't essential.
When you click "Customize" you have a choice of standard or minimal system
files for each model of the Macintosh. Insert and select the 1.44MB floppy
where you want to install System 7, choose the option Minimal for your
Macintosh, then click Install.