PlayStation Portable games can be played two ways: either from the UMD disc media available on retail shelves, or you can download psp games from the PS3 to a memory stick and then insert the stick into the PSP and run the game from there. Running from the memory stick cuts down load times and power requirements and has become a desirable means of playing.
This also has opened the doors to piracy on the system, and users can find complete games for download on the Internet without paying for them, then play them as easily as if they'd bought them, provided their PSP has the proper firmware. Sony keeps making firmware revisions to try to halt this piracy, often making it impossible to play legit games on the system if your firmware isn't fully updated.
Games can usually be found either via a method like Bit Torrent, or sometimes full disc images are extracted from the UMDs and posted online for download or traded between players, circumventing copy protection measures.
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