It uses your local network. The first sync normally takes some time, but leave it syncing overnight and it should be done in the morning.
Remember that everything in the Apple TV is synced/streamed thru iTunes. If you have movies in an external drive, which are not in iTunes, they won't sync/stream to your Apple TV. Also remember that iTunes does not support codecs like AVI or mkv. So if your movies are in those format, you would first need to convert them to an iTunes friendly format.
Supposing your movies are in the correct format, then yes. You can connect the external to your Mac, import the movie to iTunes, and then sync/stream them to your Apple TV. BUT, you need another HD in your Apple TV to store the movies.
As for connecting the external drive to your Apple TV, out of the box it can't be done. You need to hack it. For this ATV Flash is GREAT.
I installed it about 6-8 months ago, and so far I have had no problems at all. ATV Flash offers you many options, of which the next are the most relevant:
- You can connect an external drive.
- You can play AVI files.
Having this two options practically eliminates the need to sync/stream movies from your Mac. This way you don't depend on having your Mac turned on.
The only things I sync to the Apple TV is my photos and music. All my movies are in an external drive and connected to the Apple TV.
I hope i was clear enough. If not, do ask me any doubts.