I'm not sure how it works exactly.
In my opinion, the executable make some kind of "call track number xx", and this track must be the number xx on your CD. It might be just like on a CD player, when you want it to play track xx...
I doubt ip.bin needs to be modified.
Darkfalz surely knows more about this than me. He wrote a program to hack 1st_read.bin in order to accept CDDAs :
http://darkfalz.hypermart.net/software/index.htm