It did play PS2 games when it first came out. That functionality was removed in later models.
Compatibility within the console(PS3 games on ps3) is a major reason I play console games. When I purchase a new PS3 game, I don't need to check the system requirements. I don't want to get home and find that I need the faster PS3 to play it or that I can play it but it won't run smoothly. Every PS3 game works smoothly on every PS3, that's a lot of compatibility compared to PC.
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