Boot from the System disk that came with the computer, do an erase and install.
There is no "Erase and Install" button on OS 9
On pre-OSX systems, you have to boot from the CD, manually open the Disk Utility / Drive Setup / HD Setup (name varies with different versions of the OS) from the Utilities folder on the CD, and Initialize / Erase / Format the drive, then do an OS installation.
NEVER use "move" on important files. ALWAYS use copy and then delete the original files.
When you drag a folder from one Volume to another Volume (as what would be the case 'moving' something to a USB drive) it always copies. The only time the OS moves volume to volume rather than copies is if you hold a modifier key down during the drag.
OP: did you delete the files from the hard drive? What evidence do you have that the folder is gone?
Your iMac is USB 1.1 - what does the USB key documentation say about compatibility with USB 1.1 and OS9? Did it come with any Extensions or drivers for Mac OS9? If so, did you install these?