Yes sir, they do indeed work, with improved quality, and if you have a psp, using remote play you can play ps1 games on the psp, which is fun.
Apparantly, the quality of the older games being played on the ps3 was horrid, but after updates its much improved.
Now, all i want is trophies implemented with ps1 games that you buy on Playstation Network
Unlike the Xbox, ALL older playstation games work, and if they dont, its a disc problem... by the way, theres no specified disc colour, the ps3 plays cds, dvds, and blurays