It was apparently hidden in the lead-in area, but I can't find any information on how it was encoded. Some sources say "a hidden sector in the lead in" but that doesn't seem right, as there is nothing physically stopping a DVD burner with custom firmware from writing a hidden sector.
The disk key is small (40 bits) and I'm suspicious it's actually encoded as wobble frequency [0], like the PS1's copy protection scheme.
Because CD/DVD burners can't write wobble. Blank CDs/DVDs ship with a pre-made wobble in the pre-groove, which the burners use to determine the absolute position of the write laser.
But you couldn't rip the copy protection signal (not that you needed to, it was a fixed 4 letter string, "SCEA", "SCEI", or "SCEE" depending on region)
Nor could you burn it onto a CD-R. It was there to prevent people from burning copies of games, not to prevent you from ripping the disc.
Of course, it was stupidly easy to bypass with a mod chip. They literally just sit there injecting the copy protection signal into the cd rom electronics, tricking it into thinking every single disc was blessed by Sony, burned or not.
Not needed for emulation. I never owned a PSX so I used EPSXE and whatever I got for the N64 in early 2000s. I jumped from a GB/NES in late 90's to a PC. It was like crossing a wormhole to another dimension.
In this era, console designers were't concerned about emulators or ripping games. They were entirely focused on preventing game duplication (especially with CDs being so easy to copy) and unlicensed games. And the PS1's copy protection makes an ok effort at being a roadblock to running non-sony discs.
In fact, the question of emulators wouldn't have been on the Sony engineers minds at all.
Because in 1994 (when the ps1 launched) there were no viable console emulators.
There were a few early prototypes, but they didn't produce 'playable results'. The first viable emulator (for any console) was arguably NESticle, released in April 1997. Things then moved rapidly, we see the first viable 16bit emulators in 1998.
It's notable that the PS2 doesn't have any protection against ripping games either. The Sony engineers would have been aware of emulators by this point, but they might have assumed that emulation would be stuck in the 8/16bit era for the foreseeable future.
So it must have been a huge shock for the first viable 32bit era emulators to come out in 1999. Connectix Virtual Game station (Jan 1999), UltraHLE (Also Jan 1999) and Bleem! (March 1999)
Yes.. that's right. We went from the first viable NES emulator to viable PS1/N64 emulators in under 2 years.
I'm guessing the PS2 was a little too close to it's March 2000 release date at this point to slap on rip protection, but the Gamecube and Xbox were released 18 months later, and both had time to implement disc encryption schemes.