When the PSP displays "USB Mode", it has mounted its Memory Stick (or internal storage on PSPgo) as a mass-storage device on your computer via USB cable.
What You Can Do
Transfer files: Copy games (PSP/PS1 demos, homebrew), saves, music, videos, photos, RSS feeds between PC and PSP.
Charge: The battery charges while connected (if not full).
Manage storage: Format, create folders, delete corruption.
What You Cannot Do
Access the XMB (CrossMediaBar) menu or play games while in USB Mode.
Use the PSP as a webcam or microphone.
How to Exit Safely
On PC: "Eject" the PSP drive (Windows) or drag to Trash (Mac).
On PSP: Press the Circle (O) button to return to XMB.
Troubleshooting Tips
Use the original Sony USB cable or a high-quality data+charge cable (some cheap cables are charge-only).
Ensure the Memory Stick is seated (PSP-1000/2000/3000).
On PC, check Device Manager for "PSP Type B" driver issues.
Format the Memory Stick on the PSP (Settings → System Settings → Format Memory Stick) for proper folder structure.