When Photos is selected you can browse your iPhoto library:
Transferring
To transfer photos or albums to your PSP you can simply drag them to the PSP category item on the left. You can select and drag multiple Albums or multiple pictures.
If your PSP is using version 2.00 firmware or greater, you have the option to use TIFF picture format which you can set in the application preferences. Version 1.x firmware requires the use of JPG format (default) for pictures.
Options
You can change the quality of your transferred pictures by adjusting the Photo settings in the Application Preferences.