Custom firmware is basically official firmware but you can now use a ton of different hacks, mods, and homebrew. And yes, you can go back to OFW anytime you want. To play newer games you're going to have to update your custom firmware as new ones come out though, which is really easy.
Anyway, you can see the whole history of homebrew and a little summary of what you can do
here because PSPwiki doesn't really help unless you're looking for something very specific.