Forget about streaming older PS1-PS3 titles - the hardware will not be compatible this time, so earlier games won't work at all unless their developers make a time consuming port to quite differenct hardware architecture.
They create emulators on the server side and stream the games to whatever architecture is running the client. It's one of the main reasons they purchased Gaikai.
That seems like a massive, unworkable kludge that will frustrate users more often than it actually works.
Wasn't it a gaming company that basically did that? (video game streaming). I think their technology was fine and they were doing good, until they were bought.