You need it to encode DVD's with Nero. It's possible that your version came with your DVD burner and did not include this feature. http://www.nero.com/enu/store-dvd-plug-in.html If you don't wish to purchase it, you can use 'DVD Flick' or 'FAVC' instead.
DVD Flick will convert avi or mpeg files to DVD format and optionally burn the disk. It will also create a menu if required. FAVC is similar. http://www.afterdawn.com/software/video_software/dvd_tools/dvd_flick.cfm http://www.afterdawn.com/software/video_software/dvd_tools/favc.cfm