The PSIO is an optical disc emulator (ODE), which mimics the function of the PS1's disc drive in order to play games off an SD card instead of the original disc drive. Don't let the emulator portion of ODE trick you into thinking the games are just being emulated though; the games are all running off the PS1's original hardware in the exact same way they do from a disc drive. The emulation part comes from the PSIO tricking the PS1 into thinking it is the disc drive and that the ISO game files on the SD card plugged into it are actually game discs. They're pretty cool little devices.
However, if you were going to get a PS1 with an ODE I'd definitely jump for the Xstation instead. Not only does it look way more aesthetically pleasing, but it just works better with games too. Both require the system to be modded and do require an experienced modder to install them. I've installed about 20 Xstations for myself and various other people. I've installed one PSIO and while it seems to work fine I definitely prefer the Xstation over it.
