1. convert the video to a format it can play, Handbreak will do it, it's free and works very good - I'm converting a video in it for my iPod Touch right now

2. go into iTunes and import the file, it will show up under the movies section, well it does on Windows any ways, I would assume Mac version is identical.
you'll want to mess with the settings in Handbreak to find the sweet spot, the .m4v format seems to work well with the iPhone/Touch though.