The instructions here set up HDD loading using either HD Loader or OPL game launching software and are the recommended way to load since the game's built-in HDD option is restrictive. See more info in Understanding the HDD modes. Both methods can co-exist with each other so you are not limited to one or the other.

If you want to use the official in-game option, see game HDD method.

Required Software

HDLoader v. 0.8c ("HDLoader/HDL"): This is the best way to format and rip the ISO file into the virtual HDD
Open PS2 Loader ("OPL"): More up to date software and recommended way to play the game from virtual HDD.

Install

Enabling HDD in PCSX2 and creating the HDD file

PCSX2 uses virtual HDD files to emulate a HDD. Although the minimum size is 40GB, on the newest PCSX2 1.7.0 nightly releases, the file will *not* actually take up 40GB on your HDD - it is a "sparse file," which means that it will only take up as much space on the HDD as whatever is installed to it.

However, if you are on 1.6.0 or a PCSX2 1.7.0 nightly older than roughly December 2022, the file *will* take up the full 40GB. If you want to create a file just big enough to hold the two games and take up the least amount of space on your HDD, follow the optional instructions below.

Open command prompt or Powershell and navigate to the folder where you would like the virtual HDD image to reside.
Substitute whatever file name you would like in place of dev9hdd.raw below. The number 13958643712 is 13.0 GB represented in bytes. This should give us just enough with a small bit of headroom:
fsutil file createnew dev9hdd.raw 13958643712

Open the ps2 ini file with HDD parameters, and set the values to the following, making sure to set the path to the HDD file to wherever you chose to store it:

1.7.0 nightly with QT UI: inis\PCSX2.ini

[DEV9/Hdd]
HddEnable = true
HddFile = C:\Users\generic\Downloads\pcsx2\hdd\dev9hdd.raw
HddSizeSectors = 27262976

1.6.0: inis\CLR_DEV9.ini

<Hdd>C:\Users\generic\Downloads\pcsx2\hdd\dev9hdd.raw</Hdd>
<HddEnable>true</HddEnable>
<HddSize>13312</HddSize>

Save the ini file. Skip ahead to formatting the virtual HDD.

On PCSX2 Nightly 1.7.x

Click Settings --> Network & HDD

1.7.x Network & HDD UI, click create image

Under "Hard Disk Drive," check the "Enabled" box.
Browse to where you would like to place the virtual HDD file, or use the pre-set option. Set the size to whatever you would like, but the minimum is sufficient for installing both games.
QT UI users only: Click "Create Image."

On PCSX2 Nightly 1.6.x and older

Click config --> Dev9 --> Plugin Settings
Check the "Enable HDD" box

Click the "Options" button next to "Enable Hdd"

Stay with the default file location or click "Browse" and select your own.
Set the HddSize to 20 GiB in 1.6.0x. 20 will be more than sufficient for both games.
Click Apply.

Formatting the virtual drive and installing the game

We will do both through HDLoader.

On 1.7.x with QT UI: Click "System" --> "Start File" and navigate to where you downloaded HDL_V0.8C.ELF
1.6.x and older: Click "System" "Run ELF," and do the same.

HDLoader will start and prompt you to format the drive. Press Continue.

Make sure the DVD is inserted into the virtual drive.

On PCSX 1.7.x with QT UI: System --> Change Disc --> Select your Outbreak ISO
1.6.x and older: CDVD --> Click "ISO", then make sure "ISO Selector" is set to the Outbreak game.

Press Install option, select the game name, and click End. Wait for the game to install, do not use turbo mode to speed up.
When the install is done, the name of the game should appear in the list. If you want to play Outbreak from HD Loader, even though OPL is recommended, press SELECT on the game name, enable the option Kill HDL after launch.

Playing the games

Start up OPL.

1.7.x: System --> Start File --> location of OPL elf
1.6.0 and older: System --> Run ELF --> Same

In OPL, open Settings by pressing X.

Set HDD Device Start Mode to Auto.

Press D-pad down until you reach OK, and press X.
Select Save Changes and press X.

Press O to access the Games List.