It's pretty complicated to explain how the software is actually working in details, but as far as I know and used the application there is:
- the base software that emulates the PS1 operating system
- the plug-ins (sound, video, gamepad, memory card, CDROM)
- BIOS (the actual OS that has all the necessary instructions)
The ePSXe loads the BIOS file and then all the plug-ins along with the PS1 ISO or disc and boots the game.
You can find more at the Wikipedia website: https://en.wikipedia.org/wiki/EPSXe
