Instructions
Click on "Multi-Player" on the main screen after the title screen has loaded.
Communicate with your friends outside of the game to determine who will be the game's host. Because you will be playing over a PSP local area network (and not online) it will only connect with other people who have "GTA: Liberty City Stories" on their PSP in the same room as you.
Choose "Create Game" if you are hosting and "Join Game" if you are not hosting.
Notice that players are randomly assigned to teams in the game-loading screen. To switch to a different team you will have to move your player name from one team to another. If you are having trouble doing this, try disconnecting and reconnecting to the game to be reassigned.