PSI stands for Problem + Stimulus = Idea. You take a clearly defined problem, put it next to something unrelated, such as an object on your desk, a photo, a street scene or an overheard conversation, and look for the ideas the collision produces.
It's less a single trick than a frame for a whole family of stimulus methods, and its rules are loose on purpose. Any stimulus will do, as long as it's vivid enough to get your mind moving. Nothing is precious: a stimulus that sparks nothing simply makes way for the next one.
What PSI does insist on is the P: a problem you've looked at from several angles, so the stimulus has something specific to catch on. That's the main difference from its close cousin, Random Words, which fixes the stimulus as a single word.
Use it when you're stuck and want a simple structure you can repeat, your ideas have gone stale, or you'd rather draw on your surroundings than stare at a blank page.