The PSP ISO file for Final Fantasy Type-0 English Patch v2 is a digital image of the game's data, extracted and modified to include the English translation. Working with PSP ISOs involves using specific software tools to read, modify, and write data back to the ISO file. For patching, enthusiasts typically use a combination of hex editors, patching tools, and PSP-specific utilities to ensure the modified ISO is compatible and functions correctly on the PSP.