whiteout or .wh files are created in pupsave file of a frugal install when 
-builtin packages are deleted using remove_builtin
-a file from a loaded sfs (pupxxx.sfs, zdrv or other) is deleted
-a pet is uninstalled 
Their purpose is to mask files which can't actually be deleted so they disappear from directories, menus etc.  For example, if files 1 and 2 are present in pupxxx.sfs and file2 is "removed", the result in the layered file system is:

""<table><table border="1">
<tr><td>what you see &nbsp &nbsp</td><td>file1</td></tr>
<tr><td>pup_rw</td><td></td><td>.wh.file2</td></tr>
<tr><td>pup_ro#</td><td>file1 &nbsp &nbsp</td><td>file2</td></tr>
</table>""
.wh.file2 and file2 disappear after remastering.  
The files from an uninstalled pet and the associated .wh files disappear when the system is rebooted.

More:
[[http://www.puppylinux.com/development/howpuppyworks.html Layered file system]]
Help screen of remove_builtin