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For someone who doesn't know about how the PS3 works at all, could someone explain what the "Master Key" is and what finding it means?
Also, why the discoverer would choose not to publicise it? (Is he planning to sell it??)
Well the answer to that is on the page. Apparently last time it came out a bunch of people commercialised it by making dongles and selling them, and the scene wants to avoid that happening again before an open source thing is released.

PSGrade (as mentioned in the post) is open source: http://www.ps3exploits.com/2010/11/open-source-downgrade-on-...

Yeah, I saw that, but why do they care?
Well, like some of the open source community, they don't really like to see people profiting from the hard work they put in to release things to the community. It's not business to them, it's idealism.
Right, but if they're not going to release it, it's not open-source, right?
Actually, the whole contradiction goes away if the claim is a hoax, which it seems to be. Never mind.
(comment deleted)
There seems to be a lot of high-fiving and back slapping in that thread but I'm also flummoxed as to what this actually means.

I'm going to naively presume it's something to do with being able to run unsigned code on the PS3?

A few months ago someone started selling some USB devices that would allow you to install third-party software on the PS3 bypassing the security measures behind sony OS. In short, you could rip games and play them from the hard drive without the disk. Later on, similar open source code was able to achieve the same without buying any special usb device: you could in fact use almost any ARM processor, including an android phone or an arduino. Google psgroove.

Sony of course immediately fought back, first banning the altered OS from the game network and then releasing updates that were not compatible with the loophole. OS on the PS3 cannot be downgraded.

Then, the hackerz fought back and again sold a PSdowngrade device that would allow you to go back to a previous version of the Operative system. Same path, an open source version is released called PSgrade (it's on github) but to work it needs a key associated to your own device or.... a master key.

Can Sony change the master key by pushing a software update? Can they use a different key in newly manufactured units while maintaining backward compatibility?
It's a trusted computing type lock down AFAIK, so not software update-able. I think they can try the latter of your suggestions, but the same process could just be used to discover the new key, or they'd need to do some serious re-engineering.
They sure have measures to counter act this on new units. I think they should take a different pathway though. I have a PS3 that was mainly used as blue-ray player but I am not a gamer by any mean (in fact the only game I have is guitar hero). I follow the scene just barely out of curiosity and what strikes me from what I see on different forums is that people care A LOT about the possibility to play online with other players and sony ban to the game network is really the main incentive for people not to jailbreak.

To the point that someone got two PS3: one hacked for solo playing and one originale for networking!

then all the games out there that have already been sold wouldn't work anymore.
this is apparently fake. see page 24.
Reading those forums is the mind death (and I don't just mean psx-scene; almost any php forum seems to be a magnet for senseless commentary).

To hopefully reduce the amount of ads and dancing monkeys one needs to endure to follow up on the claim that @baq made, here is page 24 in print mode:

http://psx-scene.com/forums/f6/ps3-master-key-found-graf_cho...

It is my opinion that this he-said-he-said stuff can only be proven out over time, or by validation from a "calmer" information source.

The original source is an unauthenticated blog comment[1] and the one person he claimed to have given the key to has refuted this from his authenticated forum account, so it's probably safe to assume it's a hoax.

[1] http://xorloser.com/?p=297&cpage=15#comment-2225

Yet a closed source commercial PSdowngrade does exist. I wonder if it's based on the same principle (namely, they do have the master key).
Hex (digits) or it didn't happen.

Edit: apparently fake.