A .dvd file is just a disk duplicate (ie dd) of the disc. Basically it's an .ISO image. The code is in the module 'Disk_Drive'. It gets a rip command and spawns dd.
The reason for the separation is just to keep things organized, so when you hit 'music' you get music, 'movies' gives you dvd's (ie with menus, titles, etc.), and 'videos' is other video files like MPEG, AVI, etc. (usually recorded TV shows and the user's own video clips).