Mid 2007 iMac wont boot from USB and wont set up

To perform this action will require booting from a Bootable Installer. 

The Bootable Installer can Only be performed on an Apple Computer 

This will have to be performed from a Qualifying Computer to run the version of macOS to be made on the Bootable Installer. Example : Bootable Installer of Big Sur would have to be done on a computer that Qualifies to run Big Sur.

Notation: If the computer being used to perform this action is Too New or Too Old to qualify to run the version of macOS - this computer can not be used.

Alternative is, to gain access to a Qualifying Apple Computer from a family member, friend or associate.

The macOS 10.11 installer .dmg file is not a bootable installer image. It is just an archive bundle containing an installation package utility which requires a compatible Mac to run in order to expand its contents and create the real macOS 10.1 installer app to place within the Applications folder. Only after this point can most any Mac be used to create the bootable macOS USB installer using the Terminal commands. There used to be a non-Apple article with instructions on how to use the command line to manually extract items from the installation package (.pkg) found in the downloaded .dmg file, but it was extremely convoluted and confusing plus I think Apple changed the file since then so it may no longer work anyway (I don't have the link handy). It still required macOS to manually create it though since it leveraged macOS command line utilities although it was also possible to use Linux as well although it requires utilizing different tools to do so. Even this process did not provide the same macOS installation experience since the resulting USB boot image was missing some items.

You can try finding a retail copy of an OS X 10.6 Snow Leopard install DVD to use in order to get started where you can then access the macOS 10.11 installer.

Since even macOS 10.11 is extremely old, out-dated, and unsupported by Apple, another option would be to install Linux Mint to the iMac. While it is not an Apple OS, it will work and is a great way to have a current (non-Apple) OS with access to the current versions of popular web browsers (Firefox, Google Chrome, Vivaldi, and others) and access to lots of free open source software such as LibreOffice which are easily installed from the Linux Mint's software repositories. However, Linux is not for everyone and does require you to learn a new OS. Linux works best with at least 4GB of memory.

Good your were able to achieve what your set out to do.

Though, Technically, Transmac may have moved the DMG to the External Drive but the DMG is Technically not and installer nor does it make the External Drive a Bootable Installer.

As pervious mentioned the PKG file contained inside the DMG is the actually Installer Application