First of all, convert your video in a format readable by iTunes, because if the file can be playes on iTunes, it is sure that it will work on Apple TV too. .avi files aren't compatible, so, for example, you can try mp4. You can convert your files to mp4 with iSquint, and choose the option "optimize for tv".Another soft you can use is Handbrake, which creates DVDs in mp4 format, and compresses them in one step, so it is a little more easier than iSquint.
To do this using Handbrake, start it and click source, looking for your DVD. Then use the title drop down to select your movie, episode or TV show. For TV shows, each episode will be a different chapter, and if you have subtitles, make sure that you will check the option that makes them appear, under Audio and Subtitles section. After you set up everything, click on start and wait for the file to be converted and the DVD done.
For streaming on Apple TV, you should get the files you want into iTunes. I think it's better to keep the files on an external drive, and to set up iTunes not to copy them into its library, you should go to Preferences, and then Advanced and uncheck the box “Copy files to iTunes Music folder when adding to libraryâ€.
Drag the files to the library and enter the information for the movie, or for each episode, if you have some series. For example, to keep a track of the episodes in a TV show, I used in the numbering system first the number of the season, and then the number of the episode. As you move the files from the movies section to the TV show section they will start appearing there, so you will have to switch to TV show view.
After you finished editing the information for every episode/ for the movie, you can also add a cover for your movies, to recognize them easier in the library. If you have the files well organised on iTunes, then you can access them via the Apple TV. Another important thing to mention is that if you use Handbrake to convert them to Apple TV mode, they won't be playable on an iPod. So if you want them for the iPod, check the iPod Hi-res option in Handbrake when converting.
Now that you have organised your Apple TV library and found out how to stream Apple TV, you can start watching your favorite shows or movies there, at high quality.