I've been staying active on the GameSpot PSP forums lately, and like many PSP forums, GameSpot tries to be ethical by prohibiting discussion of Custom Firmwares, backup loaders, and homebrew. Some agree, saying that these things are illegal and unethical, but the truth is, none of the things for which GameSpot disallows discussion are inherently illegal in and of themselves.
Custom Firmware simply allows the execution of unsigned code. Basically, this means code that Sony wouldn't want you to run. It might sound illegal, but Sony is not the law, and what they don't want you to do doesn't necessarily match up to what's illegal.
Now, unsigned code is anything that Sony either didn't make, or what they didn't approve of. Homebrew software is, simply put, unsigned homemade code. So homebrew allows you to do things with your PSP that you couldn't previously do. For example, I've turned my PSP into a universal remote, used it as a gamepad, controlled PC(remote-play style), and I've even used it with a palm wireless keyboard. Another popular and controversial activity is to play legacy games using emulation. This can also be a legal and legitimate thing to do, if it is done right.
Probably more controversial than emulators or homebrew, backup loaders are what lets pirates download and play games illegally. It's also what lets legitimate game owners play all their games on their memory stick, while their UMD is safely tucked away somewhere. It's completely legal to have one copy of your game as a backup, which on paper, means to ensure your original copy isn't lost or damaged, but in the real world this offers more portability and faster load times. None of this is illegal, as long as you have only one extra copy besides your original, and as long as you don't give copies to others, you can enjoy the benefits without a guilty conscience.
I know that custom firmware is a touchy subject for many gamers, and simply hearing the word 'hacking' brings thoughts of online cheaters and pirates who want free games. But having a 'hacked' console of any type doesn't necessarily make you a bad person(although it would make piracy and illegal activities much easier), it only lets you do things you previously couldn't. Custom firmware unleashes the full power of your PSP, and while some might wrongfully say that's illegal, I think the end-user has the right to do what he wants with his console, and it's only fair, since Sony decides to restrict homebrew software and limit the PSP's potential.
But keep in mind, custom firmware is powerful. Perhaps too powerful. While this power can be used for good, it is too often used for what's illegal and unfair. I'm not condoning piracy, I'm only endorsing custom firmware, and trying to get across the point that piracy isn't the fault of the people behind the custom firmwares, it's the fault of pirates that take advantage of the system used for backup loaders.