How does ppsspp get the game icon and image

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Yes,if the image have false lba or dummy files,when you compress the image,the space that the false lba or dummy files take is reduced to 0

CSO compress the game data and deduce the space the false lba and dummy files take to 0
If you have image that is 700mb,have 200mb empty space(from false lba)and 100mb dummy files(when a game is using the false lba method,usually there are no dummy files in such image),when you compress the image,the image size will be less than 400mb because the game files are also compressed
If the image don't have dummy files nor false lba,I hardly doubt the size will become less than 400mb(unless it contains easy to compress files)

Some games use false lba\dummy files just to make the reading process easier(when you play from the UMD)

There is also Install data that is almost never needed to play the game and that install data may take a lot of space too