There are two ways a DVD can be used. One is as a video disc, and the other is as a data disc. Now, that might sound pretty much like the same thing, and it is, but there is also a distinction.
DVD's, as video discs, contain multiple files in a particular subdirectory called the VIDEO_TS directory. The files consist of VOB (the actual video), IFO (data information to organize and synchronize the files, and BUP which are just backups for the IFO files.
DVD's, as data discs, can contain any file that a computer can read, since they're only useful IN a computer. It's like a floppy disc or flash memory. Even though you think of AVI, MPG, or WMV files as video files, they aren't video. They're data files which contain information for a computer to digitally recreate video.
When you burn a DVD, you need software to do so, and most software will usually give you an option to burn either a Video disc or a Data disc. To play in your DVD player, you need it to be a Video disc. If you select AVI or MPG files, then the software will transcode them into the proper VOB, IFO files for your DVD player to recognize them.
Nero came with my DVD burner, so that's what I use. I don't do much in the way of disc burning, so it works well enough for me. When I want to create a Video disc, I also have the option of creating a slide show. Which is just still images and audio files. They still need to be transcoded into VOB & IFO files, and Nero does that for me. (Since video is just a series of frames, a slide show is just video of the same frame being repeated.)