In 1999 I came across a half page article on a remarkable water waste prevention system called D'MAND™ manufactured by Metlund Systems. I have not had time to investigate further or purchase a unit myself but it looks like the ideal system to eliminate wasting the cold water slug that is emptied from a faucet while waiting for the hot water to arrive from the water heater. Nomally due to badly designed house plumbing layouts, showers that are located far away from the water heater may require a wait of 1-2 minutes for hot water to arrive at the shower head. With a low flow shower head (1.7gallons) this still amounts to ~4 gallons of wasted water for each shower. Multiply this by the number of people in a family and days in a month and it can become a significant waste of water. Remember hot water is used elsewhere in the kitchen and bathroom faucets. Each faucet can contribute to wasting water if one has to wait for the hot water to arrive.
To learn more about this system it is best to just visit Metlund System's website which describes their system in detail. If I do find time to install one myself I'll use this page to post pictures.