Sony has demonstrated how one PSP with a game can share it with another PSP (without that game) by downloading the data to the client's RAM.
From gi, "The Game Sharing feature has been put to use in PSP title Namco Museum. In this example, one player selects the transmit function from an in-game menu, while the other selects "Game Sharing" from the PSP's main menu. When the systems recognise one another, a short download begins and the second player can then choose to play any of seven arcade classics stored in RAM."
"The use of RAM to store the games rather than on the Memory Stick Duo means that players cannot continue with the games after the PSP has been shut down or sent back to the "Home" menu - from which players usually access media functions and launch software from UMD."