Calles PSGroove, the code allows a standard USB dongle to bypass Sony's protection and execute homebrew software. However, there are key differences between Groove and Jailbreak. For one, whereas Jailbreak was being pushed as a one-stop shop for playing games from your hard drive, Groove is a highly involved hack. It requires compiling source code, and putting the code onto an AT90USB enabled USB stick via a development kit and flash technology. In other words, this is highly involved, and duffers stand the very real chance of blowing something up.
However, the key to this is that the code is open source. That means anyone with the means to do so can change the code to their liking, which means opening up those options to play games from physical media will probably have been done by the time this article goes up. PSJailbreak was closed source, which forced you to have to buy the software for an outlandish price and possibly get a clone. For less technical users, the difference between closed and open source is like cooking your own meal vs. going to a restaurant. At a restaurant, you can pay a premium to have someone else make the food, but if you don't like it, it sucks to be you. Open source, you have to know what you're doing with the ingredients, and it takes time and effort, but you can make the food to your tastes, and once you're done, you can put the recipe up for others to use and potentially improve upon.
Sony's next step is unclear. They cannot just stomp this out in the courts like they are with PSJailbreak. They can't just block the entire line of AT90USB devices; the hack will go to other devices. The next step up from that would be to disable the USB slots in their systems for anything not explicitly, digitally signed by Sony (like the Dualshock 3 or Sixxas controllers), which creates numerous issues, because to do that would be to destroy the ability to load data onto the PS3, all but ruining the ability to do anything with photos or anything else and would create a legal challenge that makes the Other OS class-action look like child's play. Sony really has a grand total of two choices:
1. Permanent bans for any consoles or user accounts using this or similar hacks. This is what Microsoft does to anyone caught doing anything they don't like, like what they're doing with people that play Halo: Reach early.
2. Maintain a hardcore file integrity check that bricks any system who's files are compromised in any way. It is what it sounds like; it's Sony seeing that someone's been hacking the firmware or what not, and rendering the entire system inoperable until properly serviced, assumedly with a hard-coded BIOS unlock. This is the nuclear option, as Sony would be running a massive risk in both public relations (imagine the false positives) and legal issues. If someone could demonstrate intent to effectively destroy someone's purchased system without violating the DMCA, Sony could be liable for payouts.
This is all in the United States, naturally. In the UK, everything I've mentioned is banned, though that has never stopped anyone before. Furthermore, the market in "pre-loaded" USB sticks is likely about to explode.
Sony's next move in this is going to be very interesting. As the company behind SecuROM and music CDs that put rootkits on users' computers without consent, they have demonstrated that they are not above playing dirty to maintain their profit margins, even dirtier than companies like Apple and Microsoft. The cat and mouse game between Sony and the hackers has officially begun in earnest.