well instead of having the actual hardware that plays ps2 and psx games built into the system, it uses software to emulate the games. I'm not entirely sure what all the implications are, but the major difference is that it's not perfect. It doesn't support 100% of the games, and there are known glitches in a few of them, some minor, but many I think that still have yet to be fixed. All in all, I think it's not really that big of a deal, and it will probably be improved later on.

I'm not sure on one thing though, and I hope someone can clarify it, is if the emulated games can utilize online and the ps3 hard drive?