the motion picture industry association of america (MPIAA) came up with regioning DVDs and DVD players so taht it could control the production and distribution of DVD in different areas/economies/pricepoints so as to maximise profits on DVD sales, while touting it as a good anti piracy measure (which is bullshit, really).
basically your DVD player will only play DVDs of the same region - region 1 is america, region 4 is australia etc etc so that people in one region cannot buy DVDs from other regions which have not yet been released in their own region
for example, films are released in the US about 6 months or so before they are released in some parts of the world, and so the film will still be in the cinema in, say, australia, while it has been released in america on DVD. now obviously, studios want people to go to theatres (as they make more money) in australia, and not purchase the DVD from america and lend it to all their friends, thereby reducing overall profit.
furthermore, by the time the film was released in australia, it would be an 'old' film in the US, and so people in australia would be inclined to order the DVD from the US for say, $10, rather than pay full price here in australia ($30).
overall its just a way of chopping the world up into various markets, so as to squeeze more money out of everyone - which is why you should just buy a region free DVD player (region 0) and play whatever you like. personally i know people who download and sell pirated DVDs that they make to be region free, so the whole issue doesnt mean a whole lot to me
though it does irk that the MPIAA manipulates everyone the way they do
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(which is quite amusing, given i dont drink spirits 
