When you have created the ISO folder in the root of your memory stick, then put some Iso's or Cso's in there. If you try to run them now, it says something about the game cannot be started.
To make them work, hold the power button for 6+ seconds until your psp shuts off. Then turn it on again while holding R!
Then you will boot into recovery mode. Now all you have to do is go into "configuration" and enable "no umd mode"
Now your games will work!

(or atleast some of them, some of the games i have wont run. GTA VCS, Gun: Showdown and a few others..)