"Actually, it's hard to give this question a straight answer. As far as I'm concerned, it doesn't really stand for anything at all! A lot of people assume it stands for "PlayStation Scene-Graph," as a scene-graph forms a central part of our graphics engine. However, we prefer not to think of it that way because there are many more aspects to the project than just a scene-graph library. Really, the name was just chosen to compliment other parts of the SDK, such as PSGL (the OpenGL/ES variant which is one of the main PS3 graphics APIs)."
Jason Doig, SCEI's R&D Manager, "Neon Info - An Interview with...", Sony's PSSG project.