1) Potential sizes issues generally* or within the formats themselves. Granted CD is probably below this limit in most regards (16 bit addresses would not work, 32 bit is around 4 gigabytes) so maybe if those optical drive emulators get it going on then something interesting could happen.
Sadly the internal addressing system on CDs is not a 32-bit integer (which would allow enormously many sectors), but weird BCD stuff, ranging in the best case from 00:00.00 to 99:59.74. The CD can't deny the origin as pure audio storage. Each second has 75 sectors (2352 bytes total, 2048 bytes when used for data after subtracting parity bits/error detection/error correction)
Some CD-players (and DVD-players in CD mode) fail going beyond 90 minutes, many fail at 99:59.74
Despite the addressing system depending on decimal numbers, I got the hexadecimal 0A:00.00 as sector number when going beyond the 100 minute mark (1100MB SVCD). I guess it is no coincidence that high-capacity, narrow track CD-R maxed out at 100 minutes (many 90min/800MB CD-R actually go to about 93:30min, while 100min/870MB CD-R don't go much further). My DVD players crashed at the magic position, while the PC drive can read the full thing in RAW mode.
I've no idea how an optical drive emulator -- or the PlayStation itself -- would react when trying to address too high sector numbers. Physical PS1 CDs are -- as far as I know -- limited to the older 74min/650MB. I wouldn't want to torture the aging drives with narrow track, out of specification, CD-R just to gain a bit more storage (878MB at best). I was surprised to hear the drive running much smoother and more silent when using old 74min rather than current, normal 80min CD-R.
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I can't answer the initial question "How to make multi-game PS1 discs?", but I fail to see much use in it anyway: Since many games contained CDDA tracks and/or "full motion video" (wasn't that some marketing phrase at the time?) to show off what CD based consoles could do over cartridge based systems of the time, we could hardly fit multiple full games unmodified and lossless on one CD.
For some smaller games it would be a nice thing to have (and I would be interested in doing it myself).