How does PAO fit together with the Major System and the memory palace?

PAO (and the Major System) encode items into images; the palace stores and orders those images.

* The three tools divide the labour: Major encodes, PAO compresses, the palace stores in order. *

The full memory stack, by job:

• Major System — turns numbers into sounds/words (raw encoding of digits).
• PAO — turns cards or numbers into compact Person-Action-Object images (compressing 3 items into 1).
• Palace — holds the resulting composite images in sequence, with random access.

PAO is an encoder that happens to compress; the palace is the container. Athletes run all three together.

Go deeper:

• Method of loci (Wikipedia) — the ordered-storage half of the stack.
• Mnemonic major system (Wikipedia) — the raw digit-to-sound encoder.