There is no direct connection AppleTV to Hard Drive. Drive must be attached to a computer running Music/AppleTV apps or iTunes. Video streams from host computer to AppleTV hardware... or over the internet in situations where you rent a movie from Apple.
Ethernet simply means that whatever you want to watch is less likely to stutter if wifi is in high demand and/or adversely affect others using wifi because the video being streamed is hogging a chunk of wifi bandwidth.
Advice: if you can reasonably easily connect it with ethernet, get that one. If not, wifi. $20 is perhaps the easiest hardware upgrade in Apple's entire lineup.