Instructions
Press "X" on "Playlists" under "Music" on the main menu.
Press "X" on "Create New Playlist," and provide a name for your playlist.
Highlight your new playlist and press "Triangle." Select "Edit" to add tracks to your playlist.
Press "X" on all tracks, which appear on your left, to add them to the playlist. Press "O" when you are done to save the playlist.
Activate your custom playlist in your supported game. This process will vary greatly depending on your game. For example, you can enable music in "Burnout Paradise" through the Options menu, but you must listen to custom music in "Grand Theft Auto IV" through your mobile phone, accessed by pressing "Up" on the directional pad.