The PSP supports region locking for games and movies, which limits which software may be played on each region's hardware. This scheme is based on the DVD CCA's DVD regional lockout scheme; Japanese PSP hardware already has a R2 logo on its box. However, support for regional lockout does not necessarily mean it will be used for all software.
Games for the PSP are currently being encoded as region-free, and an official Sony statement states that this will continue indefinitely. There will be no limitation as to which country's handheld can play which country's version of the game. This will open up the "portability" of the handheld, as well as enable gamers who buy a PSP game while visiting another country to play it on their native PSPs.
Movies, on the other hand, are region-locked, and while no music UMDs have yet been released, these will also be region-locked.
The real experience is that the Japanese version of a game cannot be played together with another user using the Western version of the same game. For example, a user running the Japanese version of Ridge Racer cannot play (via wireless) with another user running the UK version of Ridge Racer. Similar cases also applied to the game.