Affected units have their system date set to Dec 31, 1999 (something impossible to do manually, according to PS3 News) or January 1st 2000 and the consoles are only able to play non-protected games.
This, combined with errors like the following: 8001050F - Hardware failure. Cannot update Firmware or connect to Internet
This is mostly due to extreme shortages from manufacturing problems, and possibly due to an attempt to artificially increase hype. Because of scarcity, systems were selling on eBay for several thousand dollars, well above the MSRP, which prompted a "me too wants money" reaction from the general public in the United States.