What is a psychological event? Pretty much anything a person does is a psychological event. This includes events or behaviors that are observable by others, such as smiling or walking, and events or behaviors that are not observable by others, such as thinking and feeling.
Some will note that this definition of “psychological event” is very similar to the definition of “behavior” offered by radical behaviorists, such as B.F. Skinner. The problem is that most of the rest of the world does not define “behavior” the way a radical behaviorist does. For most people (including many psychologists and even some types of behaviorists), “behavior” does not include private events such as thinking or feeling.
Functional contextualists could simply use “behavior” but then carefully define it, as Skinner often did in his writings. However, it could be argued that Skinner was fighting an uphill battle with that approach and that he ultimately wasn’t terribly successful in convincing people to include private events in their definition of “behavior.” Thus, we have the use of “psychological event” by functional contextualists.