Open Command Prompt in the folder containing chdman.exe and your ISO. Type: chdman createcd -i "game.iso" -o "game.chd" -c cdzl
A: No. A real PS2 cannot read CHD or CSO files. You would need a modchip and an OPL (Open PS2 Loader) with a specific build that supports ZSO (a different format), but it is unstable. Stick to raw ISOs for real hardware.
A: Using 7z with Ultra settings, you can get it down to ~1.8GB. Using CSO level 9, ~2.3GB. You cannot go lower without re-encoding the massive 6GB of video files.
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Add the -cc zstd flag (if using newer CHDMan) for the highest ratio: chdman createcd -i "game.iso" -o "game.chd" -c zstd:lzma:cdzl
Happy compressing!