Summarize:

Though AppleTV is a great way to view most movies, it's not a great way to view all movies. Certain video file extensions are incompatible with AppleTV and, thus, can't be played within the program. Knowing which files will and won't work in AppleTV ahead of time can be a big time-saver:  Generally, mp4, m4v and mov can be easily transferred. Conversely, mkv, wmv, webm, and avi are usually difficult to transfer or incompatible entirely. Mp4 files are easy for AppleTV to play, so, if you can convert your incompatible file from its original file type to mp4, you should be able to play it. Luckily, several converter apps are available for free online - simply Google, download, and install the software, then convert your file to mp4 (or another supported format).  Some converters will even have a special Apple TV profile pre-programmed for easy conversion. Below are just a few popular video converters available for download:  MPEG Streamclip Handbrake Format Factory (Windows only) Freemake Video Converter (Windows only) With luck, your new files should work just fine. In some rare cases, it's difficult to get files to play in AppleTV even after converting them to a compatible format like mp4. In some cases, you may also need to adjust the parameters of the video file  to make it easier to play. Here are compatible settings for several AppleTV-supported file types.:  H.264 video up to 1080p, 30 frames per second, High or Main Profile level 4.0 or lower, Baseline profile level 3.0 or lower with AAC-LC audio up to 160 Kbps per channel, 48kHz, stereo audio in .m4v, .mp4 and .mov file formats MPEG-4 video up to 2.5 Mbps, 640 by 480 pixels, 30 frames per second, Simple Profile with AAC-LC audio up to 160 Kbps, 48kHz, stereo audio in .m4v, .mp4 and .mov file formats Motion JPEG (M-JPEG) up to 35 Mbps, 1280 by 720 pixels, 30 frames per second, audio in ulaw, PCM stereo audio in .avi file format
Know the types of video files supported by AppleTV. Use a free converter application to convert to mp4. Import your new mp4 files into iTunes as normal. If necessary, adjust the parameters of problematic files.