Here's how it basically works:WanderingFool said:
You have your PSN account. You can activate that on up to 5 Playstation systems (right now, I think it's just PS3s and PSPs; you can do 5 PS3s, 3 PS3s and 2 PSPs, and so on, but 5 is the max). Activating the system to play content purchased with your PSN account will allow anyone who uses that PS3 or PSP on any profile to access that content, regardless of what PSN account they happen to sign into. That may be restricted if the game has extra DRM, like some Capcom titles, but there isn't any extra DRM, that's how it works.
You can also deactivate the account on a console so that if you're going to sell it, or it had some kind of hardware failure that lets you turn it back on (your disc drive dies, for example), it won't be able to play your games anymore. You also get one of those 5 activations back when you deactivate a console. So say you have a PS3 and a PSP, and they are both activated. You would have 3 activations left. But you don't play the PSP and you're going to sell it. You deactivate your PSP before you do so and now you have 4 activations left.
This nice for legitimate customers for obvious reasons: if you have different PS3s in different locations (like a kid whose parents split up and spends time at each of their places) you can play without worry, if you have a system that bricks and you can't get it back on to deactivate it then you'll still likely have other activations left so you can start playing your content on your replacement without having to deal with anything beyond just downloading all the content again.
However, you can obviously use all 5 of your activations if you get 5 PS3s that YLOD for example. In that case, you do have to call customer service to get the activations reset, and if you haven't done anything nasty like gamesharing, then it generally goes smoothly (from what I hear anyway; I've never had to do it myself). And if you have gameshared, they see that and apparently tell you too bad, no more activations for you. Which doesn't matter because even if you could get some, your account is now on the fast track for a ban anyway.
Now for how people abuse it. Like I mentioned above, once you activate a system to use your PSN account's content, that system can play it regardless of who is or isn't signed in. So what people do is trade account logins so they can log in, activate the account on their console, download content from that account, and then log back into their own accounts and play the other person's stuff online and get trophies in it and everything else as if they had actually paid for it. As long as they leave the other PSN account activated on their system, they just got a bunch of free stuff.
