It's the metal surround for the TFT LCD display. It cuts under about half of the square button and also on the oppposite side with the right D-PAD button, and I dont know whether you read about it at all but lots of people with the really early PSP-1000 and K series PSP's reported that the Square and right D-PAD buttons were malfunctining and in some cases stopped working.
This was a small design flaw on Sonys part as to keep the PSP as small as possible they put these inputs to close to the screen. This flaw was rectified in the latter editions and Sony offered to repair the faulty units, so its nothing to worry about. ^_^
thank very much for your reply.
yes i read about some buttons malfunctioning...but i couldn't remember if they were the two buttons you mentioned.
on mine i can hardly see the metal under the right button of the d-pad, but under the square button it very noticebla.
at first for some reason i guess i was sooooo excited in getting the psp that i did not bother "inspecting" it detail by detail...but then later i did that and i freaked out after seeing that metal part. i thought i did something and i broke it...
but you mentioned something...that the metal part under the square button covers half of the button (under)...mine is half then a half...