Helping people with computers... one answer at a time.
The term "recovery CD" is somewhat ambiguous as there are several different possibilities. I'll review some of the options.
If you make a Windows recovery CD after you've used your computer for a year, what will be the result? Will you get a CD that will bring you back to your original setup or a copy of your machine like it is now?
Depending on what recovery CD you're really talking about, the reality is somewhere in between.
Manufacturer recovery CDs use various approaches to give you what you had when you first got your machine.
And Windows recovery CDs only concern themselves with Windows itself.
In this (mostly audio-only) video from an Ask Leo! webinar, I'll discuss some of the possibilities.
'If you make a Windows recovery CD after you've used your computer for a year, what will be the result? Will you get a CD that will bring you back to your original setup or a copy of your machine like it is now?'
As you know, I'm not a big believer in Windows Recovery CDs; I much prefer true, system backups.
My belief is it's somewhere between the two extremes that you list. I believe the recovery CD will include system updates, patches, and so forth that you've taken since over that year, but it will not, for example, include all of your installed applications or anything like that.
That's not necessarily what a recovery CD is intended to be. A recovery CD... and again, this is one of those things that varies from manufacturer to manufacturer... A recovery CD will sometimes simply reinstall the operating system that's on a hidden partition on your disc; it installs a fresh image perhaps from the CD itself, but I believe if you make a recovery CD from Windows specifically, it will actually include the latest versions of the various pieces of Windows itself, but only those pieces of Windows itself.