The HDD is used to download store-bought CDs into the the unit, and for uploading images from a disc created by you, with pictures on it, for personalized background pics.
It iPOD unit kinda sucks. It works, and that's great, but it controls the iPOD via the AVIC's touchscreen. Sounds like a cool idea, until you realize that the iPOD unit has NO cache in it, and as you scroll through artists, albums, playlists, etc, it only lists 5 at a time. Each time you hit the scroll button, it has to access the iPOD which takes about 3 seconds. Multiply that by however many artists or albums you have on your iPOD, and you can see how long it takes to get to.....say, T, for example.
Watching iPOD video: You can, but not via the iPOD adapter unit. You've got to get a separate adapter that terminates at 3 RCA jacks (Red, White & Yellow) by way of either the data port on the bottom, or the headphone/video jack on the top. The headphone jack units are the cheapest & most common, just keep in mind that it utilizes the small amplifier in the iPOD, which is usually pretty "noisy". (hiss)
Make sure you know how to bypass the security features (easily found here, under hacks/mods) or else you have a big, expensive touchscreen stereo as all of the NAV and DVD functions are not accessable while in motion, in the stock configuration.