In a press release issued by SCEE, the company describes the main features of the system that are common knowledge, and adds that the Euro-spec machine "also embodies a new combination of hardware and software emulation which will enable PS3 to be compatible with a broad range of original PlayStation titles and a limited range of PlayStation 2 titles."
In gist, PS2 hardware emulation will not exist in the Euro PS3, but rather rely on software. What this should result in is a much buggier, sluggish and potentially non-existent emulation experience. Of course even with this loss, the PS3 will cost more in Europe than in the US.
Source: Daily Tech