Over the months there has been a lot of inaccurate information circulating in regards to how exactly the PlayStation 3's Service Mode works, and as promised in our previous Dev updates here are some of the facts to help separate the rumors and speculation.
It is a fairly simple process as follows.. For starters, the PS3 is powered off, and a special USB dongle, known as the Jig, is connected. The PS3 is then turned on, and then off, once it has detected the Jig.
After this occurs, the PS3 is then turned back on, into "Service" Mode. From here, the PS3 is re-flashed using a Firmware Update on a USB stick, specifically designed to only install from the Service Mode. Once the PS3 is re-flashed with the software, it is then used in conjunction with a PC running customized software, specifically the DEX.exe and CEX.exe's.
There are a multitude of special PS3 firmwares, basically three major ones. The first is a Core System, followed by the Service System, then finishing it off with the Final Software.. usually Retail.
From the CEX/DEX PC side software, just about anything can be done: Copying, transfer and resigning of box-specific items like PSN games, user profiles, etc.
Furthermore, the systems can be re-flashed to any software version as well. The system's keys can also be "rearranged", such as the marrying of the PS3's BD-ROM Drive (or controller) with the mainboard. Needless to say, this can do a lot more than a simple "Recovery Menu", as it can change firmware and more.
Over the last few months we have also compared the flash dumps (pictured below) done by our very own courier of a PS3 in Service Mode with a Retail (and a Debug) and found that the systems are primarily alike, however the Bootloader 1 of the Service Mode PS3 differs than that of the other systems. Work is still being done by the resident PS3 Devs in trying to pinpoint exactly why this is the case.