With the new update to the PS3, you can now control the PS3 via the PSP, and play games/watch videos /listen to music that is on the PS3. That is probably what he meant. I probably wouldn't do it, since giving your friend the ability to turn your PS3 on/off will get annoying. It will inevitably mess with your gaming time when your friend wants to use your PS3.
Yes, you can purchase PS1 games and play them on your PSP. You will also be able to play PS3 games on your PSP (as of current, the only game to be able to do this is Lair).
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