Soft modded - battery can be converted to pandora by a PSP running CFW (all phats, only the first slims with the TA-085 Motherboard)
Hard-modded - Battery is opened up and the link with the EEprom is severed. Few ways to do this - Cut the 5th pin, trace the line on the PCB.
Soft modding should always be the preferance, as there are some risks attached to messing with a battery (explosion).