1) You do the classic pull the game apart, identify the audio, figure out the audio format and create some more in that format, or alter the game to use a new format of your choosing. The PSP being a newer device means there are some known audio formats vs stuff like the 8 and 16 bit consoles where ever dev would do their own thing most of the time and thus little commonality between games. I am not so familiar with the various things seen on the PSP, and it is less commonly seen than stuff like GBA and DS audio edits (which were also new enough/shared a common format for most games), but there are some things out there, AT3 audio being a good start here and even has some nice tools by the looks of things.
2) Somewhat unique in it working on hardware (or at least the non 1000 hardware). I have seen plugins made that will wait until certain things in the script or whatever are triggered and have the plugin fetch and play some audio. https://github.com/ZhenjianYang/ZeroAoVoice-PSP
being one such example. Emulators running off and fetching audio (and video and whatever else) when it sees a given thing in memory is nothing terribly new though -- see Lua support in various emulators. Having things not work on hardware is generally frowned upon around here (too much drama with getting old hacks to work on newer/not custom tweaked emulators, and then when everybody abandons PC emulators for phones and consoles and whatnot...) but if it works for you then go for it, and there are plenty of other places that consider such considerations horribly limiting (though usually that is those working on later systems, and having had my eyes bleed from trying to play an N64 slideshow that my younger self mistook for a game back in the day then they might have a point).