Yes, that is what it does. But only works for external HDDs.
Since I wanted to save HDD space on my internal, I moved a lot of games to my external. And discovered that the Rock Band games had to have the BD emulator active for that game, plus an original game disc in the tray--doesn't have to be the original game disc of the game you are trying to play.
As for the Red Dead Redemption game, I have that one on my internal HDD and it doesn't require a disc to run. Check with this site, to learn more about how to make certain games to work.
PS3 Backup Compatibility List - PSHomebrew