you can just use the Light Custom Firmware for your psp..
ISOs and CSOs are the file extension of a game that has been ripped from a UMD disc..
CFW are used for you to be able to play those ISOs and CSOs, w/o CFW or LCFW you can't play ISOs..
And its in your decision on what size of Memory Stick you would use, at least 1gb will be enough for the files that are needed to apply LCFW on your psp..
but for the game, i think you might wanna have at least 4 or 8gb. in my case i'am using 16gb.