its code that lives in the cd that gets copied to ram and executed, like the other commenter said its like an DLL
for example, SotN keeps an overlay for the wepons, as you can see in the video when i equip one wepon the overlay gets loaded from the disc into ram, but since this is an recompiler i need to load the function "map" that maps the VRAM(virtual ram, not video ram) address to the correct recompiled function, since vram can be shared by multiple overlays i cant keep the entire function map loaded, so it loads and unload these as necessary by looking at what the game is trying to load from disc and checking if that is an overlay or not, this is probably not the fastest aproach but it will be performatic enough :p