Definition:
CFW, short for Custom Firmware is used by gamers and modders to tweak their video game consoles and mobile video game systems.
There are several advantages to using a custom firmware, some of which include the ability to run homebrew programs and applications, play emulated game roms, and play backup copies of the system's games directly from the hard drive or memory stick.
Also Known As: hacked firmware, unofficial firmware, modified firmware
Examples:
In order to play an ISO version of a Sony PSP game from the memory stick the PSP will have to have custom firmware, as this feature is not supported by the supplied official firmware on the system.

