Well, there's this thing where you can easily search for information called Google. You just go there and enter keywords. Here, I've already done it for you.

...OK, just hold triangle and x at the load screen.

Anyway, I don't know much about how the backwards compatible PS3's handle PS2 games, but it likely renders them in whatever resolutions the game supports and then upscales them to whatever resolution it's outputting, probably 720p.

And because I started this on a smug dick-ish note, I'll end it on one - the best video quality available is an emulator on PC.

I'd be fairly certain that the PS3 emulation (especially the launch models with the Emotion Engine on board) will default to progressive mode simply because it makes the task of upscaling simpler and cleaner (no de-interlacing prior to upscale). It won't however output the games in HD, only emulators do that.

The PS3 actually upscales really nicely on its own, I found that putting RE4 in progressive scan actually made it look worse. It should look fine. I really miss having a backwards compatible PS3, the upscaling makes a huge difference.