Note: it seems that the software hasn't been updated for several years - the version linked to this page is the latest to exist.
PS3 Video 9 is a free video conversion application developed by Red Kawa. It allows you to convert your computer video files (like avi, divx, mpeg, etc.) into the specific video formats that are playable on the PlayStation 3. It can convert all types of video files (avi, divx, xvid, flv, x264, mkv, vob, mpeg, DVD's, YouTube, etc.) into the proper video formats (MPEG-4, H.264) that play on the PSP3
The software is free for download and use. There is also a version for Mac.