One thing that can be confusing for people new to Nero Digital is the use of the MP4 container. Although MP4 is the technically correct container for MPEG-4 files, whether they're encoded with MPEG-4 ASP (DivX, XviD, Nero Digital) or H.264 (x264, Nero Digital AVC), there's a lot of confusion stemming from a history of using Microsoft's AVI container.

Why Not AVI?  

So why should you care whether your video gets put into an AVI or MP4 container? There are actually a number of compelling reasons to consider. The first is the case against AVI. AVI is the container used for Microsoft's Video for Windows (VfW) interface. Not only is it specific to Windows, it's not even particularly useful there since VfW development was halted years ago, replaced by DirectShow technology. If it weren't for the introduction of the hacked DivX ;-) (aka DivX 3.11) codec for VfW, Microsoft likely would have stopped including support by the time Windows 2000 or XP came out.

Not only does AVI require the VfW code in Windows for playback, it also requires VfW codecs to encode video. This runs counter to modern encoder development, which is better implemented in standalone programs that use DirectShow for decoding files (in Windows anyway). Instead of relying on Windows to provide the interface for encoding, it's better to control things from the command line. Not only does this make the encoder responsible for everything it has to do, it also enables better portability between different operating systems.

Why MP4?  

Once you've determined that AVI is a poor choice of video containers, the next question becomes what to replace it with. Although MP4 is the official answer, it's not the only possibility. However, if you consider all the reasons for choosing a new container, it's the clear winner. The first requirement for a suitable container is to be generic. In order to make it attractive for encoding and playback software and hardware to be created the market needs to be suitably large. If different companies are interested in using the container you're more likely to see standalone players and computer tools for it. Although at least one open source container, MKV, can be used to store MPEG-4 and a large variety of other formats,
it hasn't gained the kind of market penetration and commercial interest its developers had hoped. It's suitable, but not practical.

That leaves us with the official answer of MP4. It's generic enough that any standards compliant MPEG-4 (ASP or AVC) format can be stored in it. Although there are issues with splitting video and audio data in MP4 files, with additional software it can be done. It's a good computer format for working with video, and if companies like Nero work closely with consumer electronics manufacturers, there's no reason set-top boxes ranging from DVD players to IPTV receivers designed to read from external storage can't take support it. With the large amount of video expected to be moving across the internet within the next few years, it only makes sense to find some standards that are useful for everyone and build an infrastructure based on them. With formats like AVCHD becoming standard for camcorders and AVC support established as standard for next generation standalone formats, it seems like a no-brainer to settle on a standard MPEG-4 container for computer use.