Plug your USB drive into your PC. Create a folder structure exactly like this on the root of the drive: \PS3\ (Note: The folder name must be in all caps).
While the PS3 can install PKG files natively, extracting them on a PC offers several advantages:
Not all PKGs are equal. are encrypted and signed with Sony’s private key; Debug PKGs (for devkits) often omit encryption or use a known test key; PUP (PS3 Update) files are a special subtype of PKG.