Creating Windows USB Recovery Drive. 32GB Requirement

The actual formatted capacity WILL always be less than the capacity stated by the USB manufacturer as the sectoring takes up some room. In the FAT formatting the file allocation table takes up some room and NTFS formatting also has two tables (redundant) used to track and locate the records on the "disk". These are necessary to keep track of the "chunks" of files and what memory addresses they are located at to put the file you requested back together in one piece for transfer to whatever destination in RAM, display, printer, etc.

So yes ... the formatted capacity will always be somewhat smaller than what the memory capacity is. 

Should have experienced the old hard disk days when they had MFM vs RLL formatting and tracks/sectors, etc.... LoL.

A study of the physical workings of a computer vs the hardware is a career unto itself... 

I suspect, if it will not successfully create a recovery drive the USB thumb drive has an irrecoverable defect in the memory chip and you should seek a new one of reputable manufacturer. You really do get what you pay for.