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Im very confused on what a bsp actually is. I've seen how cool multiplayer maps they make, but still have no clue on what they are and how to do them.

What is a BSP?

What exactly do they do when added to a map?
(I tried adding one to lockout, but it just froze).

Answers to these would be great.

A BSP is the map itself.
It is the terrain (and/or buildings, etc) you see (and collide with).
This does not include stuff like crates and such (which I'm hoping you know what they are)

BSP = Binary Space Partitioning, and SBSP = Structure Binary Space Partitioning.

BSP's cannot be added to a map using your method, but you can use Entity to add SP bsp's to a map. Look in files.halomods.com for it.