Hello, and welcome to this guide that i have quickly written just now!
This is the current method I use to whack videos and music onto my PSP, taking efficiency into consideration. I've researched a lot of this, and have found no better alternative.
VIDEO
Video is kind of easy, i don't think this needs a guide just a few tips. At first i used Nero Recode (which comes with Nero 7 which i... ahem.... purchased recently) which is great. It provides a video profile labelled Memory Stick video for PSP and you can choose your bitrate, plug in your PSP, and off you go!
I also found that pspvideo9 was a very good tool. Although not as powerful as Nero Recode, it is more user friendly and provides a video management kind of tool.
For more information, either do a google search for "pspvideo9" or visit your local software supplier/warez outlet for Nero 7.
AUDIO
Now for music. I noticed on a few threads that most people either use WMA, or MP3 at low bit rates. WMA is a wiser choice, but a pain in the ass to encode. And MP3 is just crap (very outdated). The best alternative is MP4 audio - it privodes better compression than both WMA and MP3 (FAR better than MP3) at the same quality.
First step, visit
http://www.dbpoweramp.com/ and download the dbpoweramp Music Converter (dMC). Install it, but don't worry about mp3 trial (unless you want it). If you want MP3 support without paying for it; either use a different encoder or use the LAME plugin. Don't worry though, you can still encode FROM MP3 files, just not TO.
Next step, visit the codec central on the dbpoweramp homepage. Download the mp4 codec, and install.
And we are done. You can now right-click a music file you have on your PC and click the new Convert option. Select the MP4 codec. It'll prompt you for an external encoder... just press OK with the default entered. Experiment with the various quality settings, but i find that VBR QUALITY 70 is a good choice (it seems equivalent to a 128kbps MP3), and ends up being nearly half the size of a 128 mp3. Make sure you rename the new .m4a file(s) to .mp4 so the PSP can recognize it (or is that just my PSP that has a spack attack..)
In regards to tagging (like ID tags MP3's have), i'm sorry but i have no idea and i don't really care.
For some more crap that i havn't had a chance to explore, i read in the PSP user guide that it supports AVC audio and video (H.264) and instantly thought quicktime (yuk). I actually found out that AVC is the next big thing from MPEG (Motion Picture Experts Group or something) and provides video that is the same quality as previous MP4, yet at half the bitrate (and sometimes even quarter). Do a google search for this for more info.
I hav also found a tool that can create AVC video files for PSP. It claims to be the first, and i will indeed buy it if it as good as it sounds. I went to download the trial, but found that the trial doesnt support PSP. So, after many minutes of my skilled leeching through the wide-world-of-underground, i came across this link. Let me know if it's a good piece of software!
CyberLink PowerEncoder MPEG4 AVC Edition v1.0 + KeyGen
http://www.9down.com//story.php?sid=4245
Well i hoped i helped. Peace.