VIDEO Folder
For files to show up in the PSP's Video menu on the Xplorer Media Bar menu, they have to be stored in a folder entitled "VIDEO." You can create the video folder using your computer and the PSP's "USB connection," or you can download a video from the PlaystationStore and the "VIDEO" folder will be created automatically when your download is complete. The same applies for the "MUSIC" and "PHOTO" folders respectively.
Subfolders
Your PSP can read sub-folders. For example, you could group two or three videos from the same series into a single folder. On the XMB menu, this folder will appear as an icon on the menu. It adds an extra click to get to your video, but it can look more organized and hide some video files. This is most commonly used for music, keeping all the songs from an album together. The PSP can only read one level of sub-folders, however. You can't put a folder inside another folder already in the "VIDEO" folder.
Compatible Video Formats
The PSP device can read MPEG-4, or MP4 files and some AVI files. Other video files will not work on the PSP console, and may not even show up. Videos on UMD media will also appear on the video menu. To be sure that your video files can be played on your PSP device, use a conversion program compatible with the PSP.
Creating Folders
Plug the PSP into your computer using a USB cable. Navigate to the USB connection option on your PSP's home menu. You will find this option under the Settings menu. Press "X" to select it, and give the console a few seconds to connect. On your computer, you can now open the thumb drive on your computer. From here, you can create new folders using your computer's New Folder option, and also drag and drop media to the PSP.