ISO files are basically the game files that the psp loads. CSO
files are Compressed ISO files, hence the name CSO.
CSO files are smaller in size, but some games when compressed will
lag.
eg. my GTA VCS lags when i compressed the ISO. I dunno bout other
gamers but i GTA is the only game for me that lags when
compressed.
With CSO, you can load more games into your memory card because
they are smaller in size. This is useful if you are using a 1GB
card and a game you are looking to play is 1GB ISO, cos it can be
compressed to around 800-900MB, hence fitting just nice into the
1GB card.