On the topic of iPad 4.2 and Apple TV 4.1, the first version combination to support video streaming via AirPlay, we might as well get all the caveats out of the way first. Yes, you still can't push streaming audio or video from your Mac to your iPad without third-party apps. No, you can't use AirPlay to show videos from your iPhone's camera roll, and people are plenty steamed about that. It's not a codec issue, as iTunes can easily stream the same videos to the Apple TV, so most likely the iPhone 4's AirPlay implementation isn't quite fully baked yet to handle those streams.
You can't play video from most iPad apps until they're revised for iOS 4.2 (which may not be possible yet, see note below); right now it's the Video app and YouTube for videos, Photos app for picture slideshows, iTunes for streaming from your Mac. Aside from audio (supported from most applications) that's all there is. Some iPad apps (Hulu Plus, for example) may never allow AirPlay support for licensing reasons.
[Update: As noted by a commenter below, the current version of the iOS SDK does not expose the video portion of the AirPlay APIs to third parties, meaning that any app developers who are reportedly looking to implement video streaming (like Netflix) are going to have to negotiate support with Apple on a case by case basis. If the SDK is revised once the frameworks stabilize and third parties do get access to the AirPlay video streaming capabilities, that changes the landscape considerably.]
Doesn't matter. AirPlay is astonishing. In a stroke, the $99 Apple TV has been transformed from a capable but somewhat pedestrian streaming player and video rental device into a true digital hub -- the home entertainment equivalent of a Star Trek replicator. Pushing content to the Apple TV feels fundamentally different than pulling from iTunes, mostly because it's so much easier to control and switch when sitting in front of the full library.
Pushing video from the iPad to the big screen is revelatory; it looks and sounds fantastic, and knowing that I can walk into any Apple TV-equipped household and instantly show any media on my device is going to make that holiday gift list for the grandparents a lot easier.
It's true that the lack of iPhone camera roll playback is pretty surprising, and for a lot of people that potential feature was a big driver in going out and getting the Apple TV in the first place. I hope it gets corrected soon, but there's plenty more in AirPlay that's worth exploring.
Let's walk through the one-click Apple TV update process and take a look at the basic AirPlay functionality.