How does Airplay work exactly with Apple TV?

[Ashin]

My friend recently gave me an Apple TV 3... I thought it was pretty useless when I first read about it, but it is surprisingly good - especially if you have an iPhone/iPad/iPod etc...

I soon realised you can pretty much Airplay anything, so you can have a TV streaming app on your iPhone, and Airplay it into 1080p onto your TV...

What confuses me though is that it seems my iPhone 4 really isn't doing any hard work at all (doesn't get hot, and is still usable - some apps like Twitch can be minimised and Airplay keeps going)... so how does the Apple TV actually work? It's not just idling receiving the stream and outputting it because I've hooked up my iPhone 4 using a VGA adaptor and it is laggy outputting low resolution video, I get the feeling the Apple TV is doing something different. I have to say I am actually very surprised how useful it is...

 

[Intell]

On the iPhone 4 side of it, the iPhone takes the incoming video stream or uses it's own internal video source then streams it via WiFi to the Apple TV. The Apple TV then plays the video or source as if it was streaming a movie. In some cases of streaming media, the iPhone will tell the Apple TV where to stream the media from and the Apple TV does all the fetch and processing of the video with the iPhone becoming nothing more than a fancy remote.

 

[priitv8]

And by observing how the playback timeline bar fills up with white, you can judge how good a job does Apple TV do with buffering the stream ahead.
PS This also seems to be dependent on the serving application: iTunes/iOS fills the playback buffer up very well ahead, whereas Beamer does it only minimally, at best.