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A lot of the ps1 game cd's were mainly filled with the uncompressed audio track. Wouldn't be too difficult to create small games of 4-32MB size by mp3'ing the audio track. It's all emulated anyway so wouldn't be too difficult. So lets say 4GB of storage could allow 100 plus games easily in theory 30 games could be done in 1 or 2GB or alternatively it could just allow you to play your existing ps1 games you own on psn or perhaps both.

Lots of ps1 games have aged horribly but there are also many 2D and more innovative graphics that would still look fine. Hopefully there will be a built in upscaler and anti-aliasing.