With introduction of Air Video, Wi-Fi Video is no longer on sale. It is still, however, fully supported. Unfortunately Apple doesn't give us any way to provide free Air Video licenses for Wi-Fi Video users and we can't make Air Video an upgrade to Wi-Fi Video because the changes are too signifficant and we can't guarantee smooth update for all users.
Wi-Fi Video is currently displayed as AirVideo in iPhone. That is a mistake that will be fixed with next update (which is pending for App Store approval). Wi-Fi Video is not Air Video even though the launcher might suggest that. We are sorry for the confusion and hoping that Apple will approve the update soon.
Wi-Fi Video allows you to watch your videos on iPhone over local network. You don't need to copy the videos to iPhone. You can share folders on your harddrive or selected iTunes playlists. The videos must be in format supported by iPhone (mp4, m4v and mov). You can use HandBrake to convert your videos. Note that DRM protected videos are not supported, nor are videos where the dimensions or bitrate exceed values supported by iPhone.
In order to use Wi-Fi Video you need to download and install free Wi-Fi Video Server application. The application is available for both Windows and Mac OS X.
The Windows version requires Bonjour to be installed. If you have iTunes installed, you already have Bonjour so you do not need to download it.
Note that Wi-Fi video uses port 45531/TCP. On certain firewalls (OSX Tiger, AVG firewall, etc) you need to manually enable this port.