zembla, banks are the "containers" for the X3's BIOSes. In total there is 2MB of flash memory available to the user. When flashing to either ON, ON, OFF, OFF or OFF, ON, OFF, OFF you are using a 1MB bank (the standard size of an X3 BIOS). Using different combos of the buttons allows different banks to be switched between and, therefore different capacities.
The X3 will not play DVD's by itself. You need a dashdoard like XBMC or the like to play them.