They make it sound like how OnLive does it now.
The problem is that it means that your existing PS3 disc library won't work at all. Sony has said as much already from reports leading up to this point.
But again, I still don't see any reasonable or valid excuse why Sony decided to try to make us forget all about the PS2 when it came to the question of BC for the PS3. From a logical standpoint, it makes more sense for Sony to have dropped direct PS1 compatibility while retaining PS2 compatibility on the PS3... much like how the WiiU is directly compatible with the Wii games, but not the GameCube games, while mentioning that they intend on having GC games available for Virtual console.
I forsee a similar 'service', where PS3 games could be re-purchased/downloaded for play on the PS4... eventually. And while PS4 is switching architecture to an x86 style hardware, it's at least now possible to play
PlayStation One and
PlayStation 2 games on a PC platform reasonably well... not perfect regarding PS2, but no worse from what I'd seen when compared to a softBC PS3 or a slim defaulting to the leftover debug-mode PS2 emulator left in Sony firmware code.
From what I can take away from the article, it basically sounds like a form of OnLive, specific to PS3 games, and will likely be a subscription thing if PS Plus is any indication.
I will
laugh if I see them trying to offer a rhythm game through streaming... basically anything that would normally need super-tight input latency... for PS1 that would easily include Bust a Groove, but on PS2, that would mostly account for DDR and your Guitar Hero's and Rock Band games. Yea, good luck with that.