The best way to play games with CFW is through a backup manager like Multiman, playing off the games that are located in the internal HDD.
To get the games onto the internal HDD, either use FTP to copy it directly into the internal HDD, or use an external USB drive (flash drives work, but have limited space, so external HDDs are recommended if you do choose to use USB).
The second best way to play games with CFW is using an external USB drive, either formatted to FAT32 (thus incurring the 4GB limit), or NTFS (currently read-only, so you can't backup your retail PS3 games onto an external NTFS drive, but you can still play the games on the drive). To use NTFS drives, you need to follow certain steps to set it up. Follow a guide for that. Personally I use a FAT32 drive and any games with big/split files that don't work on external, I copy to internal to play.
You CANNOT use burnt BluRay games - it just won't work.
This is my recommendation, which you don't have to follow (because it will cost money) but does make sense in the long run. Buy a 2.5" external USB HDD (any size between 500GB and 1.5TB - I use 1TB). The difference between the 2.5" and 3.5" external drives is that it only needs 1 USB port to power it (2 if you're using a longer USB cable, but since you don't need power from the wall it's much more portable). You can get one for the price of 3-9 retail PS3 games. Create a GAMES folder on it and put all your PS3 games on it. With any space left over (I still have 350GB on mine), you can put your music and/or video collection there, or put Wii games there, or do whatever you like with an external HDD.
I also recommend not playing any downloaded PS3 games - just the ones you backup yourself. If you choose to ignore that, well that's your business.
