CSO is compressed ISO. Basically they're the same in terms of function, however CSO has been subjected to some form of compression algorithm so it takes up less storage space.
it depends. CSO takes up less storage space and also less time to download, however it executes slower. (i.e the PSP has to decompress the data before it can be executed) This could cause problems with games that place high demand on the PSP CPU, as decompression requires CPU cycles. In general, CSO is probably fine if you have the choice. also, try not to use shorthand such as 'u'
You can also convert ISO and CSO backand forth, if you can download both an ISO or a CSO, then do the CSO to save Bandwidth, but be careful, CSOs can have things (like music, video) cut out! Then again if the ISO is in a RAR, then thats compressed to, just download, unrar then compress to CSO!
Free PSP Isos? You can go to the PSP Trading Station here. Or you can always try a torrent site such as mininova.org and download them there.