How M4V Relates to MP4
M4V is Apple's video format for iTunes, and the key fact about it is that it is almost the same as MP4. M4V uses the same ISO Base Media File Format that underlies MP4, the structure standardized as ISO/IEC 14496-14, so internally an .m4v file is built from the same boxes (atoms) as an .mp4 file. Apple introduced the distinct extension primarily to associate the files with iTunes and to signal the possible presence of DRM, not because the format is technically different.
In fact, for an M4V file that is not DRM-protected, you can often simply rename it from .m4v to .mp4 and it will play in players that expected MP4, because the bytes inside are essentially an MP4. The extension is more a label for Apple's ecosystem than a marker of a separate format. This is why M4V causes so little trouble when it is not encrypted: it is MP4 wearing a different name.
The one real complication is FairPlay DRM. M4V files purchased or rented from the iTunes Store can be wrapped in Apple's FairPlay copy protection, which ties the file to authorized Apple accounts and devices. A DRM-protected M4V will not play outside Apple's ecosystem and cannot simply be renamed to MP4, because the encryption, not the container, is what restricts it. So whether an M4V behaves like a plain MP4 or like a locked file comes down entirely to whether FairPlay is present.
DRM Is the Real Dividing Line
Everything practical about M4V flows from one question: is the file DRM-protected or not? A home-made or DRM-free M4V (for example, video exported by some Apple apps) is interchangeable with MP4 and plays widely. A FairPlay-protected M4V from the iTunes Store is locked to Apple's authorized devices and accounts; it plays in Apple's apps on authorized hardware but nowhere else, and stripping that protection is restricted. When people have trouble with an M4V, it is nearly always because the file carries DRM, not because of anything about the M4V container itself.
When to Use M4V
You generally do not choose M4V deliberately, you encounter it as the format of iTunes video content and some Apple app exports. If you are inside the Apple ecosystem, M4V works seamlessly. If you have a DRM-free M4V and need it to play elsewhere, the simplest path is to treat it as MP4, often just changing the extension, or converting it to MP4 to be safe. For DRM-protected store purchases, you are limited to playing them through Apple's authorized apps and devices, as intended.
Limitations
M4V's limitations are almost entirely about DRM and ecosystem labeling rather than the format's capabilities. Because the extension signals iTunes content, some non-Apple software refuses M4V files even when they are technically valid MP4s, an annoyance solved by renaming or converting. And FairPlay-protected M4V files are deliberately restricted to Apple's authorized environment, so they cannot be freely moved or converted. The underlying container is as capable as MP4; the friction comes from what the extension implies, not from the format itself.