The PSJailbreak device is intended not only to allow retail PS3 games (and not Blu-ray movies, DVD movies, or backward-compatible games) to be played from a hard drive, but can also block Sony's mandatory (and frequent) firmware updates, effectively protecting itself against obsolescence. For players with an interest in opening up their consoles for homebrew development, and not necessarily swashbuckling, it also enables the use of homebrew games and applications. (Seriously, don't be a pirate.)
At least, that's according to PSX-Scene and OzModchips.com, the latter of which posted a video of the technology in action (seen after the break). The technology's effectiveness hasn't been definitively proven and Sony has yet to provide comment. Perhaps that comment will come in the form of a new PS3 firmware update?
Update: The OzModchips video appears to use a debug PS3 system, which has the capability to run unsigned code (including code from a USB drive) and load games from the hard drive without the use of any USB dongle. This doesn't mean that the claims of PSJailbreak's effectiveness are untrue, but it certainly calls them into question. Why use a debug system to prove functionality that already exists in a debug system?
Here's how it might have been done: debug PS3 systems have "BD emulators" that allow code from connected hard drives to run as Blu-ray disc games. You can see the relevant menu options in the below pictures.