Are there any tutorials on this? I want to make it possible to play a mp4 avi video file like in a computer, just that it would be displayed on the TV screen. How do I handle the storage space? Is there any software I require to play it?
It's perfectly possible to do this. Notice the "headphone" jack on the Pi? It also outputs video, provided you get the correct cable.
After that, you can use any video player you choose to play your video file. I usually use
vlc is also available. Yes, VLC on the Pi. I will leave it to you to figure out how to use them to play files.
If you want to go a step further, you can use the OSMC operating system instead of Raspbian. OSMC is a full-blown media center OS that runs on the Pi. Click here to go check it out.
As for storage, it's your choice. Flash drive, external hard drive, whatever. Just make sure your Pi has sufficient power to deal with all the stuff you're doing with it. Make sure your power adapter can handle 2A or more*
*not really required, but it's a requirement for high-end Pis with external hard drives and overclocked CPUs