The PSX doesn't read it as an img, bin, nrg, iso or whatever. Those are just different formats for storing the exact same information as a file.
Analogy: A program looks at the CD and finds out what's on it, then wraps the contents in a package which it calls game.img, then it puts that package in your storage area. Another program that recognizes the package of that kind then opens the package, and puts whatever is inside it back on a CD. If you move the package itself over to the CD, it won't work, because the PSX doesn't know how to open .img packages, or any packages for that matter. A computer program first needs to take the raw data which is inside the package and put that on the CD.
As long as you have a program that can open the image file, and then burn it, all is good.
Never try to burn the image to a CD as a file. You open the image with a computer program and then burn, you don't copy the file to the CD directly. If you end up seeing "game-name.img" when you look at your CD after burning, you've done it wrong.
