When I click on mp4 files, I can “hear” the audio, but I cannot see the video.
If you change it to “.mov”, or “m4v”, then it should work okay.
Also, if I add .avi files, is there a way that I can watch them as well??
No. Something we’ve discussed a bit was transcoding to a format that iTunes wouldn’t mind, but I’m not sure about how possible or likely that is.