Does PSP do good or harm on children?  

I don't want to offend you or your son in any way, but it's kind of strange that he doesn't talk yet, it's also 'special' that he can play those games so well at that age.
Maybe you feel it comming, but can he be sort of autistic maybe? Since they're often good at specific skills but didn't master basic skills yet.

If he isn't, than make sure he doesn't get obsessed (angry when not playing etc) and try to keep the games as clean as possible as long as possible. Once they get violent, the interest will keep growing and the games will keep going more violent.

Eli,

Its not the game itself that is harmful, it is the games that you allow your son to play. I feel that it can be used as a wonderful tool for your son with the appropriate games and parental guidance. Just monitor the games he plays and you both should be fine.

Whenever your son plays that handheld, make him sit straight so that his neck would not be strained due to conitnuous playing for long periods of time.

There are a lot of puzzle games around for the PSP and there is even a spanich coach game wherein your son could learn how to speak both english and spanish.

Just don't let him play games that have mature content. Even though they say that its just a game and its not real, what children see in video games can still be enacted in real life.

Go to gamespot.com or any other gaming sites so that you could know which games would be best for your son by the ratings of the games available. Of course, you did say that he is rathe smart so, even if he plays violent games like Grand Theft or Man Hunt, he'll still be nice and obedient in real life.

Why not make a deal with him, like every time he does something you want, you would let him play that PSP? If that doesn't work, try to resist to givein whenever he throws a fit since, if he gets use to it, what more if he grows more and able to speak him mind instead of following his parents.

Best of luck~!