Ok, so i want to understand it all.
Hope this helps.
so i go get an ipod to download my dvd's to it.
You download the workouts to your computer. From the computer you can transfer them to your ipod very easily. But consider your computer your main storage cabinet.
To use analogies:
Computer - replaces the cupboard or shelf weher you store all your dvds. If you switch to downloads, it will store your entire workout library.
iPod - like your DVD player, except it can hold many, many workouts. Based on the capacity of your ipod you can store all your workouts or a subset on the iPod. If you run out of space on the iPod, you can swap content on it. At any point of time say it can hold 10 workouts (apart from the music and other content you place in it). If you want to do a workout that is on your computer but not on the ipod, attach the iPod to your computer, delete on of the 10 workouts on the ipod and replace it with one from the computer. iTunes has a setting called "manually manage content on the ipod" or something like that which allows you to swap content in and out of the iPod from the computer.
External Hard Drive or other backup (example DVD media) - highly recommended. Consider it the equivalent of making a backup copy of all your dvds and storing it some place else just in case there is a flood or fire in your home. Make a backup copy of the workouts tht you download to your computer. This way, if your computer crashes, you still have the backup.
Now the good thing about downloads is that you dont need an ipod. You can play the workout directly on the computer and use the computer screen as your tv.
If you get a cable that connects the computer to your tv, you can play the workouts on your tv (based on the make of computer and tv, this may be possible on more recent models and you need the type of cable that your pc and tv support).
Alternatively there are devices like
this one that will let you "stream" content from your computer or a hard drive to play on your tv.
now what happens if one day my ipod breaks?
Nothing. Your computer still has your workouts. If that breaks too, you need your backup!
how to you store your dvd's that you've paid for in a way you know you will always have them?
If you mean how to store the donwloaded video workouts, see above.
and lets say in teh future you run out of space for your dvd's on your ipod, now what?
See above about swapping content on the iPod.