Instructions
Connect the USB flash drive to your computer. Select "Computer" from the "Start" menu. Right-click the USB flash drive, select "Format..."
Enter a name for the USB flash drive. Select "FAT32" as the format, click "Format." If the drive is already formatted in the FAT32 file system format, you can skip this step.
Double-click the USB flash drive, within "Computer." Select "File," then "New Folder..." Name the new folder "Video."
Drag the video files from your computer to the newly created Video folder.
Disconnect the USB flash drive from the computer. Connect the USB flash drive to the PS3's USB port.
Navigate to the Video folder within the PS3's XMB menu system. Select a video on the flash drive to begin playback on the PS3.